(FORTUNE Magazine) – 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 not always 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 many enemies, 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, just days 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 the parts 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 the Allegis 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, the directors 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 the airline. 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 intended to buy the airline through an arrangement that would put most of the stock in employees' hands. The company's directors and new management should have little trouble disposing of Hertz and the hotels; there seem to be buyers aplenty. As for the airline, the best guess is that management will have to give the pilots and members of other unions part of the company to obtain labor peace and much- needed wage and productivity concessions. The big question is how much of the company the employees will get. The pilots were hanging tough the day after the change in management. ''The objective plainly is to have the employees own the dominant interest,'' said Eugene J. Keilin, the investment banker from Lazard Freres who is advising the pilots. But there seems to be little agreement among the unions about the deal. Brian M. Freeman, the machinists' investment banker, has been suggesting a 20% to 25% employee stake in the company. FERRIS lay low after his ouster, presumably somewhat consoled by a $3- million golden parachute. But the investment pros who helped bring him down continued to mull over his fall from power. The consensus was that Ferris crash-landed in part because of his professional background and personal style. A graduate of Cornell University's eminent hotel school, he rose through the ranks of the Western International hotel chain. After Western merged with United in 1970, he took over the airline's food service division and then moved quickly into corporate management. He became chief executive of the airline in 1976. Along the way Ferris became well acquainted with the management techniques and lore of the airline industry. He even picked up his pilot's license. Because he did not grow up in the business, however, he was never fully accepted by the tight little fraternity of airline executives and Wall Street experts who track their performance. Moreover, some employees at United had long questioned his commitment to the airline. Their distrust, coupled with what they perceived as Ferris's haughtiness, cost him dearly. It was the pilots' union that first put the company into play this spring by offering to buy the airline. ''The airline is no longer the focus of the company,'' says F. C. ''Rick'' Dubinsky, head of the pilots' union at United. ''The management is a hotel management team. We want to return to our core business.'' Ferris's woes actually began in mid-1985. Along with the heads of several other airlines, he wanted productivity and wage concessions from the unions in order to compete with low-cost upstarts like People Express and Continental. He finally wrung givebacks from the pilots, but only after an extremely bitter 29-day strike that soured management-labor relations and produced a $92- million quarterly loss. SOON AFTER the strike was settled, Ferris bought Hertz from RCA for $587.5 million and began touting his vision of a three-part travel empire, linked by his expansive Apollo computer network. To the unions, Ferris seemed determined to siphon cash from the airline to finance his disparate travel ventures. They were not happy. Says Dubinsky: ''The airline generates the vast majority of the cash -- over 70% of it. But very little is returned. It goes out the sides, the holes they've created in the envelope of the airline.'' Ferris responded, with some justification, that he in no way ignored the airline side of the business during this period. He laid plans for a lavish expansion of the airline's ground facilities at Chicago's O'Hare Airport, continued to make extensive aircraft purchases, and pulled off what was widely regarded as a coup when he bought Pan Am's Asian division for $750 million. That purchase may yet pay off, but Ferris faced some unexpected and costly problems refurbishing the Pan Am fleet. Northwest, which had been a major presence in the Asian market for decades, also proved a formidable competitor. According to some industry experts, Ferris and his subordinates might have fared better had they listened more closely to Pan Am executives familiar with the mysteries of the Asian market.

ALL THE WHILE, the Allegis boss searched for synergies among his businesses. He spoke with messianic zeal about a future in which travel agents around the ! world would perch in front of computer screens, coordinating reservations for his airline, his hotels, and his rental cars. He hinted about plans for corporate travel packages that would produce full-fare business in stunning volume. He described schemes to provide dual check-ins and frequent-flier bonuses for hotel and rental car customers. Each of his divisions, he argued, would be more valuable as part of the team than standing alone. For all his talk, Ferris failed to sell his vision. From the beginning, some of his own board members resisted the idea because all three of the company's businesses would be hit hard during a recession. Even Vice Chairman John L. Cowan at one point suggested making a countercyclical acquisition, which he described as ''an anchor to windward.'' Ferris overcame the internal objections, but few outsiders bought the program. The airline unions seethed while Wall Street continued to grouse about the company's meager profits. The issues came into keen focus last February, when Ferris changed the name of his enterprise from UAL Inc. to Allegis and launched an aggressive promotional campaign for a full-service travel company. Security analysts and institutional investors stared even harder at Ferris and his operation. They regarded Allegis stock, then selling in the $55-to-$60 range, as grossly undervalued. The investment experts judged that the company would be worth at least $100 a share if its operations were sold separately. The outfit ought to be called Egregious Corp., burbled the Wall Street wits. At this crucial juncture, Ferris might still have saved himself with an all-out effort to raise his stock price. For example, he could have followed the example of other chief executives who bought back their stock to discourage takeovers. Instead, in late March and early April, Ferris actually issued more than eight million new shares at $56.50 -- far below even the most conservative estimates of the stock's worth. THE MOVE baffled investment professionals and aroused enough shareholder wrath to prompt widespread takeover speculation. Dubinsky made the first public gesture, offering to buy the airline through an employee stock ownership plan for $4.5 billion. The union's offer amounted to $1 billion more than the market value of the entire company. Still, the Allegis board rejected the bid without so much as a face-to-face meeting. About this time Ferris and his financial advisers approached the board with a recapitalization plan aimed * at raising the stock price and keeping the company intact. But Luce led board opposition to the plan, and Ferris backed down. By now the scent of blood was in the air; the familiar ritual of a wounded management trying to protect its flanks had begun. Real estate mogul Donald Trump surfaced as the owner of slightly less than 5% of Allegis shares. He issued several statements harshly critical of Ferris and then, after a few weeks, sold his shares and withdrew. Because the company's stock had risen sharply during the period, he made a profit in excess of $50 million. He could presumably resurface when the company is sold off in pieces. ''You have to be interested in the kinds of assets the company has, in some of those fine hotels,'' Trump says. The Pritzker family of Chicago, also eyeing the hotel division, met with the pilots' union to discuss some kind of joint effort to wrest control of the company from Ferris. Then the Coniston Partners -- Tierney, Keith Gollust, and Augustus Oliver -- emerged with their huge block of shares and began efforts to replace the Allegis board with their own appointees. The company continued to throw up defenses. First it engineered a complex deal in which Boeing Co. paid $700 million for notes convertible to about 16% of Allegis's shares. The idea was that Boeing would serve as Ferris's white knight. When that tactic failed to halt the takeover momentum, the Allegis board finally agreed to a massive recapitalization plan that would immediately pay stockholders $60 per share in cash and leave them with stock worth an estimated $28 per share. The problem was that the recapitalization would have added more than $3 billion to the $2.4 billion in long-term debt already on the company's balance sheet. Such an extravagant debt load would have been perilous in the fiercely competitive airline business. Interest payments on the new debt, estimated to run about $330 million annually, might have wiped out 1987 profits. Says Philip Baggaley, the bond analyst for airlines at Standard & Poor's: ''What they were talking about was basically mortgaging the future of the company.'' In the end, the Allegis board could not countenance piling on heavy debt to salvage a master plan the shareholders disliked. Nor could it support a chief executive who had so obviously failed to stay in touch with the investment climate. On Wall Street these days, corporate managers are rated largely by their ability to enhance shareholder value quickly and efficiently. Those, like Ferris, who fail that test can expect to find themselves vulnerable. Ferris's big-picture strategy might have been workable someday; even some of his harshest critics concede that point. ''It's not something that can be proved or disproved,'' says Coniston partner Keith Gollust. But it doesn't matter how grand a scenario is if the shareholders aren't willing to wait around for a happy ending.

CHART: INVESTOR'S SNAPSHOT ALLEGIS

REVENUES (latest four quarters) $9.6 BILLION CHANGE FROM YEAR EARLIER UP 41%

NET PROFIT $84.5 MILLION CHANGE LOSS YEAR EARLIER

RETURN ON COMMON STOCKHOLDERS' EQUITY 4% FIVE-YEAR AVERAGE 4%

STOCK PRICE RANGE (last 12 months) $89.75-$48.50

RECENT SHARE PRICE $89.75

PRICE/EARNINGS MULTIPLE 28

TOTAL RETURN TO INVESTORS (12 months to 6/5) 60%