United and Continental Airlines Announce Merger



united airlines
continental airlines

Monday, May 03, 2010

UAL Corp. (UAUA) and Continental Airlines Inc. (CAL) on Monday announced a $3 billion merger that would create the world’s biggest airline.

The all-stock deal would form a coast-to-coast American behemoth with a leading presence in the top domestic markets, including New York, Chicago and Los Angeles, along with an extended network to Asia, Latin America and Europe. The deal was completed in a remarkably swift two weeks, and would give the airlines the muscle to fend off low-cost rivals at home and to take on foreign carriers abroad.

United is buying Continental, and the combined company will keep the United name and be based in Chicago. Jeffery A. Smisek, Continental’s chief executive, will run the company. Assuming the deal wins antitrust approval, the merged airline would replace Delta Air Lines as the top carrier.

The boards of both companies met Sunday to approve the all-stock deal. The UAL Corporation, United’s parent company, will issue 1.05 shares for each Continental share, valuing the acquisition at $3.17 billion, based on Friday’s closing price. The merger is expected to be completed before the end of the year.

For consumers, the merger could eventually result in higher prices. Though the new company does not intend to raise fares, according to people briefed on the matter, one of the rationales for airline mergers is to cut capacity. That reduces the number of seats in the industry and allows airlines to increase fares. In addition, United and Continental will no longer be competing against each other on some routes, allowing them to save money but offering travelers fewer options.

Combined, United and Continental have 21 percent of domestic capacity, in terms of so-called available seat miles, or one seat flown one mile. Delta has a market share of 20 percent. Globally, the merged companies would have a 7 percent market share.

United shareholders would own 55 percent of the combined company, with Continental shareholders owning the rest. Management would be roughly split between the sides. The new entity would expect annual cost savings of $1 billion to $1.2 billion, and would still fly to 370 cities in 59 countries.




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