UAL <UAL> SURROUNDED BY TAKEOVER SPECULATION
UAL Inc's diversification into hotels
and rental cars may be its downfall, analysts said.
    Digesting its acquisitions of hotels, Pan Am Corp's Pacific
air routes, and Hertz rental cars, combined with stiff air fare
competition has left the company with an undervalued stock
price, analysts said.
    The vulnerability of UAL's stock has fueled takeover
speculation, as have reports that real estate magnate Donald
Trump has bought a large amount of its stock.
    Today, a UAL executive told Reuters its chairman Richard
Ferris spoke with Trump last week. Trump said his interest in
the stock was as an investment, but the executive said the
company does not know how much Trump owns or whether he has any
other plans.
    UAL senior vice president Kurt Stocker said the company
believes its diversification strategy will work since it can
feed customers from one business to another. Several weeks ago,
it announced the new name of Allegis, to be taken in May.
    "The strategy that Dick Ferris was talking about a couple
weeks ago when we announced the Allegis name is that the whole
really ends up to be worth more than the sum of the parts.
Unfortunately, some people haven't really come to this
understanding," Stocker said.
    But those same parts - Westin Hotels, Hertz rental cars,
United Airlines and its reservation system - also has Wall
Street calculating a wide range of breakup values from about
100 dlrs per share to 130 dlrs per share.
    Analysts aren't so sure the strategy is going to work. They
mention Transworld Corp, initially Trans World Airlines,
as an example of an airline diversification gone wrong.
Transworld Corp ended up spinning off its TWA airline.
Transworld, now TW Services, is selling Hilton International to
UAL.
    "If you want to be negatively biased you say it's a stupid
philosophy, and if you're United and you put billions of dlrs
into other acquisitions, this is a good idea. There's not much
evidence one way or the other," said Dean Witter analyst Mark
Daugherty.
    "In the short or long run, they all (UAL's businesses) make
money and perform well," said Stocker. He said the stock price
hasn't caught on since the strategy is relatively new.
    Analysts say it's because earnings are relatively poor.
Earnings last year were 25 cts per share. Louis Marckesano of
Janney Montgomery predicts 1987 net of 3.50 dlrs per share.
    "They're potential is enormous. I think their problem has
been execution. The strike was the single biggest factor that
set them back in 1985. Last year, the whole industry was
involved in fare wars. They were hit harder by the fare wars
than anyone else," said Marckesano.
    Marckesano said United Airlines was particularly hurt by
the fare wars because it shares a Denver hub with Texas Air
Corp's price-slashing Continental Airlines.
    Analysts said the same strategy which has contributed to an
undervalued stock price may also result in a strong takeover
defense. They said UAL paid a lot for some of its assets and
that in itself may make the company undesireable.
    "I think they have a fairly tough management that will at
least be able to do battle with a potential shark and may well
be able to defeat them. These guys aren't pushovers," said
Steve Lewins, an airline analyst at Citicorp.
    Lewins believes the company could ultimately boost the
stock price to a level that would reflect its assets, but it
will take time and improvements in earnings.
    "If they put their nose to the grindstone, we're talking
about years for anyone (in the airline industry)," he said.
"The whole unwinding of the battle of Texas Air is going to
take years, establishing the Pacific in competition with (NWA
Inc <NWA>) Northwest is going to take until 1990," Lewins said.
     UAL today rose 2-1/2 to 62-1/2 on heavy volume of 1.9 mln
shares.
 Reuter
