United Airlines and Continental Airlines announce plan to marry the two companies, which are, at this time, the 3rd and 4th largest US airlines. The $3.2 billion dollar union is being met with approving nods from investors, according to Forbes. The two companies had broken off a previous engagement but decided to give each other a second chance. Says Forbes:
UAL ( UAUA – news – people ) and Continental Airlines ( CAL – news – people ) announced a $3 billion merger to form the world’s largest airline. United had been in talks with U.S. Airways ( LCC – news – people ) but the two called off merger talks in late April. Under the United-Continental union, still subject to shareholders and regulatory approval, UAL investors will hold a 55% stake in the combined company, Continental shareholders will own 45%. Shares of UAL added 2.7% at midday while Continental gained 2% and U.S. Airways jumped 4.4%.
Notwithstanding the preliminary prenup issues – who will be CEO, fare prices, hubs, destinations – the companies must also wait for “shareholder and regulatory approval.” Plus, according to WSJ, “Labor-integration issues and competition concerns have been the main barriers to successful airline deals” so presumably, both companies need assurance that there will be no lay-offs, cuts in perks and benefits, etc. Still, it is highly expected that this merger marriage will get to the altar with great fanfare. (They will dethrone Delta to form the largest airline in the United States world!)
And what do they have to lose? Their new business model seems like it is a sure bet. UK Guardian weighed in on the issue and said in part:
United and Continental are hoping the new business will be better positioned to surmount the perennial industry bugbears of low fare growth, volatile oil prices and susceptibility to external events, such as terrorism, with a combined balance sheet carry revenues of about $29bn a year and $7.4bn in cash.
On top of that, share prices are already up according to latest index….I can tell you this: a divorce between these two will likely be a nasty, protracted battle. So we hope and pray for their sake it works out.