United Airlines and Continental Airlines announced yesterday that they had agreed to merge to create the world’s biggest carrier.
Under the agreement, Continental shareholders will receive 1.05 shares of United common stock for each Continental common share they own.
United shareholders would own approximately 55 percent of the equity of the combined company and Continental shareholders would own approximately 45 percent, including convertible securities.
The combined company would have annual revenues of approximately US$29 billion and an unrestricted cash balance of approximately US$7.4 billion as of the end of the first quarter of this year, officials said.
The merger is expected to deliver between US$1 billion and US$1.2 billion in net annual gains by 2013, including between US$800 million and US$900 million of incremental annual revenues, the companies projected.
The Wall Street Journal said United’s board met on Friday to vote on the deal, while Continental’s board voted on Sunday to approve it.
The new company would retain the United name and keep the corporate headquarters of the Chicago-based airline, said the New York Times, which also said — citing sources close to the deal — that the transaction was expected to close in the fourth quarter of this year.
United chief executive Glenn Tilton is to become non-executive chairman of the board of the new company for a two-year term. Houston, Texas-based Continental chief executive Jeff Smisek is to be the chairman of the new carrier.
The Times said the combination of the two firms would have a 21 percent share of the domestic US air industry and 7 percent of global capacity — ahead of US airline Delta that currently leads with 6 percent.
The merger, the Journal said, would give passengers of the two airlines access to many new destinations, as United serves 100 cities that Continental does not and Continental flies to 136 cities that United does not.
The transaction could be readying for greater scrutiny, however, from the US government because of the proposed size of the deal, the financial daily said, due to US President Barack Obama’s administration’s vow to “reinvigorate” antitrust enforcement.
The merger comes after US Airways broke off merger talks with United last month, but said it expected consolidation of the fragmented airline sector in the near future.
The two groups had explored a tie-up as airlines grapple with the effects of high fuel prices, growing competition from low-cost carriers and a slump in traffic amid economic recession in many parts of the world last year.
The United-Continental merger is also being seen as a way for the airlines to maintain economic stability in a downturning industry, as was seen by British Airways in the efforts to reclaim ground with the Spanish carrier Iberia tie-up to avoid being sidelined by rivals Air France-KLM and Lufthansa.
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