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US Air, AMR near US$11 billion merger

Monday, February 11, 2013

US Airways Group Inc and AMR Corp are nearing an US$11 billion merger that would create the world’s largest airline and could announce a deal within a week, after resolving key differences on valuation and management structure, people familiar with the matter said.



Under terms of a deal that are still being finalised, US Airways Chief Executive Doug Parker would become CEO, while AMR’s Tom Horton would serve as non-executive chairman of the board until spring of 2014, when the combined company holds its first annual meeting, the sources said.


The deal would come more than 14 months after the parent of American Airlines filed for bankruptcy in November 2011, and would mark the last combination of legacy US carriers, following the Delta-Northwest and United-Continental mergers. The all-stock merger is expected to value the combined carrier at between US$10.5 billion and US$11 billion, and would give AMR creditors 72 per cent of the ownership in the new company and US Airways shareholders the rest, they said.


The board of each airline is expected to meet in the middle of the coming week to vote on the proposed deal, and an announcement would likely come in the latter part of the week, the sources said, asking not to be named because the matter is not public. Negotiations are continuing and could still be delayed or fall apart, they cautioned.


The companies had initially tried to schedule board meetings for today, the day that AMR’s creditors committee planned to convene, and had aimed to announce a deal as soon as tomorrow, sources told Reuters previously. But AMR needed more time to finalise details and the boards of the two airlines are now not expected to gather until around Wednesday, the sources said.


The AMR creditors committee is still meeting today in New York, as initially scheduled, and will continue discussions as the airlines finalise negotiations, they added. A lawyer for the creditors committee declined to comment. Representatives for AMR and US Airways declined to comment. A combination with US Airways would create the world’s top airline by passenger traffic and help the two carriers better compete with rivals United Continental Holdings and Delta Air Lines Inc.


A near-US$11 billion valuation of the combined American-US Airways compares to some US$12.4 billion market capitalisation for Delta, and US$8.7 billion for United Continental. The currently planned equity split ratio between AMR creditors and US Airways shareholders implies a roughly US$3 billion valuation for US Airways and some US$7.5 billion to US$8 billion valuation for AMR.


US Airways will follow through on its agreement with AMR labour unions last year that the combined carrier would be branded American Airlines and be based in Fort Worth, Texas, where AMR is currently based, sources said. US Airways has its headquarters in Tempe, Arizona.





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