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A federal judge ruled Saturday that AMR Corp. is entitled to a hefty breakup fee and other protections for its $3.5 billion buyout of Trans World Airlines Inc. — a major setback for rival groups that want to salvage parts of the bankrupt airline. The decision came hours after AMR, the Fort Worth-based parent company of American Airlines, struck a deal with TWA’s creditors that cut its breakup fees to $65 million from $75 million. That deal put an end to most objections, but it did not satisfy a team of lawyers led by Ed Weisfelner, who was representing financier Carl Icahn, a former TWA owner and one of its major debtholders. The breakup fee and other deal protections discouraged rival bids that could keep TWA in business, Weisfelner said. But U.S. District Judge Sue Robinson ruled TWA and its creditors had already negotiated the fees down far enough. “In an ideal world, the breakup fee would be reduced to satisfy all creditors,” Robinson said. “But in the world we’re in, with the Icahn entities, I don’t think that would ever be possible.” TWA lawyers separately asked a bankruptcy court to cancel an agreement that lets Icahn buy more than $650 million in tickets from TWA at cut-rate prices. Icahn resells those tickets through an online travel agency. American has already said it will not honor the contract if its offer for TWA succeeds. American also agreed to let the court auction separately TWA’s 26 percent stake in Worldspan LP, a ticket reservation system. That should please Northwest Airlines Corp., which owns about a third of Worldspan and has said it wants to buy TWA’s interest. Michael Palumbo, TWA’s chief financial officer, told the court Saturday the Worldspan stake is probably worth $200 million to $300 million. American also waived its right to match any higher bids for TWA. Finally, American agreed to reduce initial topping bids for TWA to $575 million from $585 million, and it said companies would only have to raise subsequent bids by $5 million, instead of $20 million. Despite loosening the auction rules, American is still the odds-on favorite in the race for TWA, the St. Louis-based carrier that filed for bankruptcy Jan. 10. American has extended $200 million in debtor-in-possession financing to TWA, and it has agreed to buy $300 million for most of TWA’s assets. The company has also said it will take up whatever part of TWA’s $3 billion debt remains after bankruptcy. But opponents of the deal say TWA has no guarantees that American will actually follow through after it wins the auction. American still has a great deal of discretion to choose what assets it wants to buy, and the company will get its breakup fee even if regulators at the Department of Justice or the Department of Transportation block the deal. “When you put all of your eggs in one basket, you put yourself at the mercy of the company you’re doing business with,” Weisfelner said. But witnesses for TWA painted the portrait of a desperate airline that had tried every possible avenue in its efforts to head off the liquidity crunch that finally came this month. In the past year, TWA tried to renegotiate its aircraft leases and its labor commitments, and it asked 21 companies for financing. The company also tried to sell its Worldspan stake. When that failed, it talked to eight airlines about selling the whole company. But all of them were only interested in “cherry-picking” TWA’s prime assets, which would have left many of its employees without jobs and its retirees without benefits, said David Resnick, the banker at Rothschild Inc. that TWA retained for the deal. “Frankly, we were ecstatic,” Resnick said of American’s offer earlier this month to buy TWA. “We had worked very hard speaking to all the possible parties that could complete a proposal. The consistent response was that they were not interested in a transaction to take the entire company.” American insisted on a high breakup fee for the transaction. The company originally asked for $85 million, plus $10 million in reimbursed legal costs, but TWA worked them down to a $75 billion package, Resnick said. Copyright �2001 TDD, LLC. All rights reserved.

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