United Airline to Merge with Continental

The UAL Corporation, United Airline's parent company, announced Monday that it would buy the Continental airline for more than 3 billion U.S. dollars to form the world's largest air carrier.

The UAL has come to a definitive merger agreement with Continental, according to a statement released on Monday morning.

The deal has been approved unanimously by the Boards of Directors of both companies. Continental shareholders will receive 1.05 shares of United Airline common stock for each Continental common share they own.

United Airline shareholders would own approximately 55 percent of the combined company and Continental shareholders would own 45 percent, including in-the-money convertible securities on an as-converted basis.

Based on last Friday's closing prices of both companies' stocks, the acquisition costs about 3.2 billion dollars. The transaction is expected to be completed in the fourth quarter of 2010.

At the same time, the agreement made it clear that the holding company for the new entity will be named United Continental Holdings, Inc. and the name of the airline will be United Airlines with the marketing brand of a combination of the brands of both companies.

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.

Glenn Tilton, UAL's chief executive officer, will serve as non-executive 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 CEO, will be CEO of the merged carrier 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.

"We are creating a stronger, more efficient airline, both operationally and financially, better positioned to succeed in a dynamic and highly competitive global aviation industry," said Tilton.

The statement indicated that on a pro forma basis, the new company would have annual revenues of approximately 29 billion dollars based on 2009 financial results, and an unrestricted cash balance of approximately 7.4 billion dollars as of the end of first quarter 2010, including United's recently closed financing transaction.

As United and Continental are both members of Star Alliance, the world's largest airline network, the combination also brings together the two most complementary networks of any U.S. carriers, with minimal domestic and no international route overlaps.

The combined company will have 10 hubs, including hubs in the four largest cities in the United States, continuing to serve all the communities each carrier currently serves.

Together, Continental and United serve more than 144 million passengers per year as they fly to 370 destinations in 59 countries.

Buoyed by the combination, the United stock in NASDAQ opened at 22.31 dollars per share, rising 3.3 percent or 71 cents on Monday morning.