AMR Plan Doesn't Fly With Big Shareholder

Icelandic firm FPL Group slashes its stake on the airline's move to shed American Eagle.
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Evidently, the move by

AMR

(AMR)

to spin off its regional carrier was not what Iceland-based investor FL Group envisioned when it acquired a big stake in the American Airlines owner.

FL Group said Friday that it has sold about 20 million shares of AMR, plunging its stake in the company to 1.1% from 9.1%. FL Group said will take a fourth-quarter hit of about $32.5 million as a result of its AMR investment.

In a September letter to AMR, the firm called for a review of strategic alternatives to increase shareholder value. In particular, it sought a spinoff of American's frequent flier program.

On Thursday, AMR announced plans to

spin off American Eagle in 2008. It has, however, seemed unwilling to lose the American Advantage frequent flier program.

"The proposed spinoff (of) American Eagle is a move in the right direction, but the lack of clarity over timing, terms and valuation has done little to enhance value," FL Group said Friday in a prepared statement. "In the light of this, FL Group has decided to divest the majority of its stake in AMR and look for other investment alternatives on behalf of its shareholders.

"While FL Group's (September) proposal received a positive reception from stakeholders, AMR's management has not been able to take advantage," the firm continued. "Combined with the external factors of high fuel costs and a tightening of the U.S. economic environment, the AMR share price has continued to suffer."

It is difficult to imagine that AMR would be displeased by FL's move. On Friday, as part of a vague statement, the company noted: "We continue to remain focused on managing our business and on the long-term interests of our shareholders."

While FL Group CEO Hannes Smarason wrote in September that "there is no time to lose" in the race to unlock value, American has taken a more deliberate approach to the airline business.

During a 2006 investor conference, AMR CEO Gerard Arpey said: "We're running the business, for those of you who are shareholders, assuming you're going to be the same shareholders 10 years from now."

It's also easy to see why the Eagle spinoff would disappoint FL Group. In its letter, the firm suggested that shedding the frequent flier program could unlock $4 billion in shareholder value. By contrast, experts say Eagle's value is about $1 billion.

Additionally, the market's reaction to the Eagle selloff has been muted. Shares rose as much as 8.4% after the deal was announced Wednesday, but gave up all of the gains on Thursday.

On Friday, AMR shares were trading up 43 cents, or 2%, to $21.24.