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August 30, 2010
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The pending merger of United Airlines, a wholly owned subsidiary of UAL Corp. (UAUA), and Continental Airlines (CAL) cleared its one of the major deterrents in its transaction, which was announced on May 3.
United Airlines received the antitrust approval by the U.S. Department of Justice to acquire Continental Airlines. This will create the world’s largest airline with enhanced capacity and improved services, overtaking Delta Airlines (DAL). With this approval, the merged company will transfer some of the takeoff and landing rights at Newark airport hub to its rival Southwest Airlines (LUV).
The agreement provides Southwest an opportunity to expand its small presence in the New York region and compete against its peer American Airlines, a wholly owned subsidiary of AMR Corp. (AMR) and US Airways (LCC). The deal with Southwest resolves the competitive concerns related to the merger and will likely benefit consumers on overlap as well as on many other routes.
The combined company will have minimal domestic and no international route overlaps. In July, the pending merger received approval from European regulators, who stated that the merger will raise competitive concerns in Europe or the trans-Atlantic market.
The merger is expected to cost United Airlines around $3.2 billion, including compensation for each Continental shareholder with 1.05 shares. This exchange will leave United Airlines with a 53% interest in the newly formed company, with the rest to be owned by Continental. The combined company will retain the old name — United Airlines, but will carry Continental’s logo and will be headquartered in Chicago. The transaction is expected to close by October 1 with shareholders approval expected on September 17.
We believe the newly formed company will enjoy a favorable position in an increasingly competitive global and domestic aviation industry and will perform better than any airline standing alone. The combined company will also create a network that can compete for long-haul and high-volume business travels. It is expected to generate annual revenue of $29 billion and save costs in the range of $1 to $1.2 billion by 2013.
We are currently maintaining our Neutral recommendation on United Airlines with Zacks # 2 (Buy) Rank.
Read the full analyst report on "UAUA"
Read the full analyst report on "CAL"
Read the full analyst report on "DAL"
Read the full analyst report on "LUV"
Read the full analyst report on "AMR"
Read the full analyst report on "LCC"
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