Dick Ferris Case

WHEN Richard J. Ferris got into trouble this spring, a fair number of folks on Wall Street were pleased. In some cases, we are talking very pleased -- a regular orgy of Schadenfreude. Ferris and his lieutenants at Allegis Corp. -- parent of United Airlines, the Hertz rental car company, and the Westin and Hilton International hotel chains -- had broken too many rules of the Street. They did notalways treat financial analysts or even some of their big institutional investors with the customary care. ''They didn't want to tell you anything, share anything, do anything to make your life easier,'' grumbles a senior security analyst. ''The real killer is that they were so goddamn arrogant it was not to be believed.'' Therein lies a powerful lesson: Even a chief executive can't afford too manyenemies, least of all when he is locked in combat for control of his company. Ferris lost his job largely because he could not persuade investors to wait around for the day when Allegis would be a grand travel empire. ''This is a great concept, but it's the kind of thing that will take three or four years to develop,'' argued Eric Gleacher, Ferris's chief investment banker at Morgan Stanley, justdays before the end came for his client. The shareholders, most of them large institutional investors, had grown impatient with the company's meager profits. Over the last four quarters Allegis's earnings of $84.5 million came to less than 1% of revenues. When the Coniston Partners, a Wall Street investment group, and Ferris's own pilots' union spoke of breaking up the company and selling off theparts to turn a quick profit, the professional investors listened carefully. According to a source involved in the battle for Allegis, Ferris did make a last-minute effort to compromise with his pilots' union during weekend talks just prior to his ouster. ''Not only did he bend, he was bent double,'' says this source. ''He was prepared to discuss the breakup of the company.'' But by then theAllegis board had apparently lost confidence in Ferris's ability to manage. The Coniston Partners, who held 13% of the company's shares, had asked stockholders to appoint a new board willing to sell off assets. The pilots were pressing ahead with plans to unload Hertz and the hotels and use the proceeds to buy the airline themselves. With shareholder sentiment running so strongly against Ferris, thedirectors saw no alternative to forcing his resignation. ''The decision was market driven,'' says Charles F. Luce, an Allegis director and special counsel to the Metropolitan Life Insurance Co. ''It became clear to us that the market was not willing to wait for this long-term travel concept to develop.'' Ferris's defeat was total. The board replaced him as chairman and chief executive with Frank A.Olson, 54, who had been running Hertz, and also added Edward E. Carlson, the company's 76-year-old chairman emeritus, to the board. Carlson saved United Airlines from economic ruin in the early l970s, a feat that earned him a spot in the U.S. Business Hall of Fame last year. The directors professed their willingness to sell Hertz and the hotels to focus the new management's attention on theairline. They even announced that the company's name would be changed back to United Airlines Inc. from Allegis, the much-maligned moniker Ferris chose to promote his travel conglomerate. Although the new company will focus on the airline business, its overall shape remains hazy. The morning after Ferris's departure, the Coniston Partners announced that they would drop efforts to replace the board.''We consider this a tremendous victory,'' proclaimed Paul Tierney Jr., one of the three partners. ''We now intend to assume a watchdog role while the board pursues the restructuring of the company.'' The Conistons may also spend some time in their counting house; as of mid-June their paper profits on Allegis amounted to about $200 million. The pilots' union, meanwhile, declared that it still...