United, Continental Announce Merger

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UAL Corp.’s United Airlines announced on Monday it will merge with Continental Airlines in a deal worth $3.2 billion, creating the world’s largest airline.

The combined company, which will fly under the United name and Continental logo, is now larger than Delta Air Lines which became the country’s largest airline when it merged with Northwest Airlines in 2008. It is expected to serve more than 144 million passengers per year and fly to 370 destinations in 59 countries.

Combining these two companies is the best way to position ourselves … to thrive in the changing and competitive airline [industry,]” said Jeff Smisek, chief executive of Continental, in a press conference with Glenn Tilton, chief executive of UAL Corp. “Continental is strong where United is weak; United is strong where Continental is weak. Putting these two carriers together is a match made in heaven.”

Under the terms of the deal, Continental shareholders will receive 1.05 shares of United common stock for each Continental common share they own, the companies said in a statement. United shareholders would own approximately 55% of the combined company and Continental shareholders would own approximately 45%. As a result of the merger, the companies expect to have annual revenues of $29 billion and save between $1 billion and $1.2 billion over the next three years.

United and Continental discussed combining in 2008 and Houston-based Continental backed out, according to CNN.com. United boasts a stronger financial position this time around though. Last week, the Chicago-based company reported a first-quarter loss of $82 million, much narrower than the $382 million loss posted a year earlier. And revenue jumped 15% to $4.2 billion.

The proposed mega-merger is subject to antitrust approval.

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