Continental Airlines (Houston) and United Airlines (Chicago) today (May 3) as expected, announced a definitive merger agreement, creating the world’s largest airline (larger than Delta) with service to 370 destinations around the world. The all-stock merger of equals brings together two of the world’s largest airlines.
Glenn Tilton, chairman, president and chief executive officer of UAL Corp., will serve as non-executive chairman of the combined company’s Board of Directors through December 31, 2012 or the second anniversary of closing, whichever is later. Jeff Smisek, Continental’s chairman, president and chief executive officer, will be chief executive officer and a member of the Board of Directors. He will also become executive chairman of the Board upon Tilton’s ceasing to be non-executive chairman. Translation: Smisek (CO) is running the show.
The holding company for the new entity will be named United Continental Holdings, Inc. and the name of the airline will be United Airlines. The marketing brand will be a combination of the brands of both companies. Aircraft will have the Continental livery, logo and colors with the United name, and the announcement campaign slogan will be “Let’s Fly Together.” This means the UA brand will be retired, but the name will survive. This also means the CO brand will survived, but the name will be retired (an unique combination). The new company’s corporate and operational headquarters will be in Chicago and it will maintain a significant presence in Houston, which will be the combined company’s largest hub. Additionally, the CEO will maintain offices in both Chicago and Houston.
On a pro forma basis, the combined company would have annual revenues of approximately $29 billion based on 2009 financial results, and an unrestricted cash balance of approximately $7.4 billion as of the end of first quarter 2010, including United’s recently closed financing transaction.
In the merger, Continental shareholders will receive 1.05 shares of United common stock for each Continental common share they own. United shareholders would own approximately 55% of the equity of the combined company and Continental shareholders would own approximately 45%, including in-the-money convertible securities on an as-converted basis.
The merger is expected to deliver $1.0 billion to $1.2 billion in net annual synergies by 2013, including between $800 million and $900 million of incremental annual revenues, in large part from expanded customer options resulting from the greater scope and scale of the network, and additional international service enabled by the broader network of the combined carrier. Expected synergies are in addition to the significant benefits derived from the companies’ existing alliance and expected from their future joint venture relationships. The combined company is also expected to realize between $200 million and $300 million of net cost synergies on a run-rate basis by 2013. One-time costs related to the transaction are expected to total approximately $1.2 billion spread over a three-year period.
The combined airline will have the most modern, fuel-efficient fleet (adjusted for cabin mix) and the best new aircraft order book among major U.S. network carriers. It will have the financial strength to enhance customers’ travel experience by enabling it to invest in globally competitive products, upgrade technology, refurbish and replace older aircraft, and implement the best-in-class practices of both airlines.
The merger will create the industry’s leading frequent flyer program, offering vast opportunities for customers to earn and redeem miles, including on Star Alliance partners.
United and Continental are members of Star Alliance, the world’s largest airline network. Star Alliance customers will continue to benefit from service to over 1,000 destinations, more connecting opportunities, additional scheduling flexibility and access to leading reciprocal frequent flyer and airport lounge benefits with Star Alliance’s 24 other member airlines around the world.
The merger, which has been approved unanimously by the Boards of Directors of both companies, is conditioned on approval by the shareholders of both companies, receipt of regulatory clearance, and customary closing conditions. The companies expect to complete the transaction in the fourth quarter of 2010. During the period between signing and closing of the merger, the CEOs of both companies will lead a transition team, which will develop a specific integration plan.
A slide presentation and the live audio webcast will be available and archived on a new dedicated merger website at http://www.unitedcontinentalmerger.com.
Copyright Photo: Ted J. Gibson/Bruce Drum Collection. This is not the first time CO and UA have come together and flown together. In the past the two companies operated an interchange route. CO’s Douglas DC-6B N90961 (msn 44689) poses for the camera at DEN (where ironically both companies once had competing hubs) with dual titles. Please click on the photo for additional details.
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