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The Honolulu Advertiser
Posted on: Saturday, January 12, 2002

Shareholder lawsuit opposes airline merger

By Susan Hooper
Advertiser Staff Writer

A shareholder of Hawaiian Airlines filed a class-action lawsuit in Hawai'i yesterday to stop the company's merger with Aloha Airlines, charging that the deal gives a "financial windfall" to Hawaiian's majority shareholder at the expense of other shareholders.

Crandon Capital Partners filed its complaint against Hawaiian and its board of directors, saying the financial benefits the merger gives to controlling shareholder Airline Investment Partners and its only shareholder, John Adams, violate the duties the directors owe to Hawaiian's public shareholders.

"We would like the court to ... enjoin the merger until such time as it can be made fair to all Hawaiian shareholders," said Richard Brualdi, a Manhattan lawyer representing Crandon Capital Partners.

The class-action lawsuit filed in state Circuit Court is on behalf of all public stockholders of Hawaiian Airlines. The lawsuit asks for a jury trial and for an unspecified amount of damages for the public stockholders.

Adams is chairman of Hawaiian's board of directors. Under the terms of the merger agreement, current Hawaiian shareholders receive about 52 percent of the combined company and a six-year, 8 percent note with a face value of $2 per share. Of that 52 percent, Airline Investors Partnership receives about 28 percent and Hawaiian's public shareholders receive about 24 percent.

Airline Investors Partnership holds more than 18 million shares of Hawaiian Airlines' stock.

The lawsuit says that as a result of the merger, Adams individually and through the companies he controls, would gain $15 million in cash, 1 million additional shares of the merged company and $2 million in principal of additional notes — in addition to the amount distributed to each shareholder, which he also will receive.

Keoni Wagner, a Hawaiian Airlines spokesman, said yesterday he could not comment on the lawsuit because company officials had not seen it.

A spokeswoman for TurnWorks, the Houston company that is putting together the merger, also said TurnWorks officials had not seen the lawsuit.

The planned merger between Hawaiian and Aloha, announced last month, has already been met with opposition. The 26,000-member American Society of Travel Agents has come out against it, saying it will likely lead to higher fares and poor service because the new airline will be the only major player in the interisland airline market. A number of Hawaiian Airlines employees have formed a group called the Citizens for Competitive Air Travel to oppose the merger on a number of grounds, including loss of jobs, loss of choice for travelers and loss of the identity of their 72-year-old airline.

Brualdi said yesterday he could not identify Crandon Capital Partners beyond describing them as an investment partnership.

It is not uncommon for shareholders of publicly traded companies to challenge mergers or acquisitions by filing suit to ensure they get the best deal.

In an August 2000 story The Charlotte Observer identified Crandon Capital Partners as a shareholder of Speedway Motorsports Inc. that filed a lawsuit against that company for "breach of fiduciary duty and corporate waste" in the sale of a tract of land at a 25 percent discount to the company's chairman.

The Observer said Crandon Capital Partners "has a history of filing lawsuits against companies in which it holds stock." Among the companies Crandon Capital Partners has filed lawsuits against are Castle & Cooke, Chiquita Brands International Inc., Perkins Family Restaurants, Gibson Greetings and Maybelline.

Reach Susan Hooper at shooper@honoluluadvertiser.com or 525-8064.