United is buying Continental in an all-stock deal to create the world’s largest air carrier, the two air airlines confirmed this morning.
Continental shareholders will receive 1.05 shares of United common stock for each Continental common share they own. Based on United's stock price, United would pay $3.17 billion for Continental, or $22.68 a share, an estimated 1.5% premium over Friday's closing price.
United shareholders would own approximately 55% of the equity of the combined company and Continental shareholders would own approximately 45%.
The deal, which must be approved by shareholders and competition authorities at the Department of Justice, would make the airline behemoth with annual revenue of approximately $29 billion. The combined airline would serve more than 144 million passengers per year and 370 destinations in 59 countries.
Glenn Tilton, United's chairman, president and CEO, will serve as nonexecutive chairman of the combined company's board of directors through Dec. 31, 2012 or the second anniversary of closing, whichever is later.
Jeff Smisek, Continental's chairman, president and CEO, will be CEO of the combined airline and a member of the board of directors. He will also become executive chairman of the board when Tilton departs.
The holding company for the combined airline will be named United Continental Holdings, 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 campaign slogan will be "Let's Fly Together."
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.
The two airlines have already launched a new website: www.unitedcontinentalmerger.com.
The new United will have an unrestricted cash balance of about $7.4 billion as of the end of first quarter 2010.
The merger is expected to deliver $1-1.2 billion in "net annual synergies" by 2013, including between $800 million and $900 million of incremental annual revenue.
One-time costs related to the transaction are expected to total approximately $1.2 billion spread over a three-year period.
"Building on our Star Alliance partnership, we are creating a stronger, more efficient airline, both operationally and financially," Tilton said.
Smisek said, "This combination brings together the best of both organizations and cultures. We have forged a highly collaborative partnership with United over the past two years as we prepared for and executed a seamless transition to Star Alliance."
The airlines cited their complementary networks, with minimal domestic and no international route overlaps. The combined company will offer enhanced service to Asia, Europe, Latin America, Africa and the Middle East from hubs on the East Coast and West Coast, and in the South and Midwest.
The combined company will have 10 hubs, including hubs in or near the four largest cities in the U.S.