A deal could be announced as soon as Monday as, after the negotiations hit trouble a week ago, the two parties this week moved closer to sealing their merger, agreeing that Continental shares would be exchanged for 1.05 United shares.
The companies’ boards have yet to approve the deal but were meeting on Friday to discuss the proposed transaction.
According to The Financial Times, people close to the discussions suggested that putting the two companies together in a stock swap could yield more than $1bn of synergies, of which about $200m would be cost savings, net of additional costs associated with renegotiating labour contracts.
Such benefits are crucial to the rationale of airline transactions and would provide value to both parties’ shareholders in a deal that has been negotiated without a premium.
UAL, the parent of United Airlines, and Continental Airlines estimate that combining the two carriers could generate about $1.1bn in cost savings and revenues.
A deal could be announced as soon as Monday as, after the negotiations hit trouble a week ago, the two parties this week moved closer to sealing their merger, agreeing that Continental shares would be exchanged for 1.05 United shares, according to people close to the talks
United had a market value of $3.6bn on Friday, while Continental’s market capitalisation was $3.1bn.
United and Continental have little overlap in their domestic or international routes – a factor that may ease approval from antitrust regulators but which limits the potential for cost cutting.
Moreover, unlike the last time the pair held merger discussions in 2008, they are now members of the Star Alliance and have formed a transcontinental venture, which means certain revenue benefits may have already been realised.
Joining the two carriers’ networks should enable the combined company to compete more effectively with Delta, the current industry leader, for the travel budgets of large companies.
