Saturday, May 1, 2010

United and Continental close to merger

United and Continental close to merger

United Airlines and Continental Airlines are expected to confirm a merger early next week, with the two Boards expected to meet over the weekend.

With only the final details left to negotiate, the merger will create the world’s largest airline – replacing American competitor Delta Air Lines when measured by passengers carried.

The two aviation giants reconvened for talks earlier this month, more than two years after walking away from a similar deal. However, deteriorating economic conditions have bolstered the need for consolidation in the industry.

United’s fortunes have also since improved.

This week, the airline reported its losses had narrowed in the first quarter while revenue jumped 15 per cent.

The company also said it had $4.5 billion in cash.

Under the terms of the deal, United would be the sole brand for the new carrier, which would be based in Chicago.

According to reports, Continental chairman and chief executive, Jeff Smisek, will become chief executive of the merged carrier while Glenn Tilton, United’s chief executive, would be named the non-executive chairman for two years, after which Mr Smisek would take over that role too.

Market sources are expecting a swap of about 1.057 United shares for each share of Continental when the deal is finalised.

As news of the deal spread trading on the Nasdaq saw United shares down 1.3 per cent to $21.47, while Continental shares were up 2.4 per cent to $22.70 at 16:00EDT today.

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