United Airlines parent UAL Corp and Continental Airlines Inc agreed to merge in a stock swap valued at more than $3 billion that will create the world’s biggest carrier by passenger traffic.
United’s name and Chicago headquarters will be retained, while Continental Chief Executive Officer Jeff Smisek, 55, will become the CEO and United’s Glenn Tilton, 62, will be non-executive chairman, the companies said today in a statement. Each Continental share will be exchanged for 1.05 UAL shares.
United and Continental together would take the top spot in global traffic from Delta Air Lines Inc, with hubs in New York and Washington and the most traffic among US carriers on high-fare Atlantic and Pacific routes. The airlines reignited merger talks last month after negotiations collapsed two years ago.
“With the recovery of the economy, fuel prices moderating, capital markets opening and both companies having solid liquidity, it was the right time to get involved in merger discussions,” Smisek said today.
Annual cost savings and new revenue from the tie-up should reach $1 billion to $1.2 billion by 2013, the airlines said. The transaction requires approval by shareholders and regulators.
Existing travel reservations won’t be affected, and customers won’t see any operational changes until after the deal closes near the end of this year, the companies said on a website dedicated to the merger.
“We expect minimal impact to our front-line employees, with any reductions coming principally through retirement, attrition and voluntary programmes,” Tilton told United workers in a message today. There will be “some reductions” in the salaried and management workforce at both airlines, he said.
UAL shareholders will own 55 per cent of the combined company. Based on UAL’s April 30 closing price, the deal values Continental at about $3.17 billion, according to data compiled by Bloomberg. The companies’ combined value as of that date was about $6.8 billion, with UAL and Continental ranking third and fourth among US carriers.
UAL gained 13 cents to $21.60 on the Nasdaq Stock Market on April 30, while Continental slid 35 cents to $22.35 on the New York Stock Exchange.
In addition to Smisek and Tilton, the merged airline’s 16-member board will include 6 directors from each carrier and 2 union representatives. The airlines said Tilton’s position as non-executive chairman will run through Dec. 31, 2012, or the second anniversary of the deal’s closing, whichever is later.
