The afternoon deal: UAL-Continental ripples
The UAL-Continental merger will, no doubt, have a big impact on the two companies involved, but will the merger affect the industry, airline share prices or the experience of travelers? That’s up for debate. Here are some facts and opinions on the deal:
Factbox: Continental, United plane orders worth $22 billion – Reuters
Factbox: The new United Airlines – Reuters
Timeline: United/Continental would create largest airline – Reuters
Continental Name Change: So Long, Proud Bird – WSJ
Then There Were Three – The Huffington Post “Will it help the industry overcome a trail of losses dating back to the Reagan era? I doubt it. Why? Because airline deregulation was based on a flawed premise, and mergers don’t change conditions enough to remove the fallacy.”
TWA, Pan Am, Eastern… and now Continental
As long expected, UAL is buying Continental Airlines for about $3.17 billion in stock, forming the world’s largest carrier and further shrinking the U.S. airline industry. It’s the biggest deal in the market since Delta’s 2008 purchase of Northwest, and retires another storied brand from the days when air travel was as much about glamor as it was about getting somewhere. The combined company will have 10 hubs, with Houston as its largest, and a workforce of nearly 90,000.
Continental Chief Executive Jeff Smisek will run the Chicago-based combined airline, but the brand will be UAL. The deal is expected to produce $1 billion to $1.2 billion in annual revenue and cost benefits for the combined company by 2013. One-time costs of about $1.2 billion are expected over a three-year period.
The companies expect to complete the transaction in the fourth quarter of 2010.
John Crawley reported late last week that while the deal should pass regulatory muster, the carriers should not expect a Justice Department review to be as swift Northwest’s, which was deliberately timed to be considered by the business-friendly Bush administration.
DealZone Daily
United Airlines has restarted merger talks with Continental Airlines as it eyes the top spot as the world’s largest air carrier. The two laid much of the ground work for a deal in 2008 but decided to puruse an alliance instead. A deal could leave US Air jilted despite four months of negotiations with United but, in a further twist to the aerial saga, United has also raised the topic of a deeper three-way cooperation between the airlines.
Top Macarthur Coal shareholder CITIC Resources said it has not yet decided whether to support a A$16 a share offer from Peabody Energy valuing the Australian miner at $3.8 billion. The 22.4 percent stakeholder said it needs more information to make a final decision on the Peabody bid.
Prudential’s Asia CEO said the British insurer is under no pressure from its shareholders to cut the $35.5 billion purchase price for AIG’s Asian life insurance unit.
For more deals news, click here.
In other media:
Newmont Mining Corp, the world’s second-largest gold producer, is holding preliminary talks with advisers to takeover target Australia’s Lihir Gold, The Australian Financial Review reported.
State-owned German transport group Deutsche Bahn is poised to make a 1.6 billion pound ($2.6 billion) bid for British train and bus operator Arriva, according to the Times.
The afternoon deal: Plane and simple?
Their shares are up, so the market is saying a merger between United Airlines and US Airways would be a good thing, right? A tie-up could run into strong headwinds from unhappy pilots and tougher antitrust enforcement, industry experts told Reuters. The feeling on the Web is that a deal is inevitable… but it’s a painful road to be on.
From the Web:
Why the United- US Airways connection might not fly (Time) “…you can’t fault the logic of a merger that would increase fares, since these guys really need the money. Wait a minute, watch me.”
United Is in Merger Talks With US Airways (NYT) “But mergers in the airline industry have been difficult to pull off, in part because complex labor contracts can offset the promised cost savings.”
Airline Mergers: Necessary, Inevitable and Painful (WSJ) “In the end, whether it happens voluntarily now or involuntarily when an airline or two ends up in dire financial straits again, I still think we’ll boil down to three international carriers and three major discounters. It just may be really painful to get there.”
US Airways and United in Merger Talks (The Atlantic) “…what else are they supposed to do? It’s all very well to say that they need to manage their business better, but the business they’re in isn’t a particularly good one…”
DealZone Daily
British Airways (BAY.L) and Spanish carrier Iberia (IBLA.MC) sign their merger agreement, sealing a long-awaited deal to create the world’s third largest airline by revenue. The deal creates a group with a combined market value of around $8 billion. Read the Reuters story here.
India’s Essar plans a $2.5 billion listing in the United Kingdom. The energy company expects to be included in the FTSE and has hired JPMorgan and Deutsche Bank to help it sell its shares.
UAL Corp’s United Airlines is in merger talks with US Airways in a deal that could create the second-largest carrier in the United States, two sources tell Reuters. Read the story here.
For all Reuters news on deals, click here. Elsewhere in media:
Greeting cards retailer Card Factory is on the verge of a 350 million pounds sale to private equity firm Charterhouse Capital Partners, UK newspaper the Times reports.
Hospital chain HCA Inc is preparing an initial public offering that may raise $3 billion, and plans to interview banks to underwrite the sale in the coming weeks, according to Bloomberg.
DealZone Daily
Japan Airlines will keep its partnership with American Airlines, due to concerns that forging ties with rival suitor Delta Air Lines would make it difficult to achieve a quick turnaround, a source tells Reuters. Delta and American have been courting JAL, now bankrupt, for months, looking to gain access to its vast network in Asia.
British pay-TV group BSkyB sold a 10.4 percent stake in commercial broadcaster ITV, finally bringing an end to a long-running legal battle. BskyB had been ordered to cut its stake to below 7.5 percent in 2008. Since then, it has been through a series of appeals, all of which it lost.
For these stories, and all other Reuters news on deals, click here.
And for a selection of news in rival media:
The government of Ghana has blocked the estimated $4 billion sale of a stake in its Jubilee oil field, foiling months of talks between potential buyer Exxon Mobil Corp and the stake’s owner, Kosmos Energy LLC, the Wall Street Journal says.
South Korea’s Lotte Group has agreed to buy GS Retail’s department store and discount store operations in a deal estimated at as much as 1.4 trillion won ($1.20 billion), according to the Maeil Business Newspaper.
U.S. hedge fund D.E. Shaw has set up a team to look at buying distressed-asset portfolios held by rival hedge fund firms, the Financial Times says.
Deals du Jour
U.S. network equipment maker Cisco systems offers to buy Norwegian video-conferencing equipment maker Tandberg ASA for $3 billion in cash. The offer price of NOK 153.5 per share represents a premium of 11 percent to Tandberg’s closing price on Wednesday.
Sanofi-Aventis (SASY.PA) says it has acquired privately-held Fovea, a privately-held firm specialised in eye diseases, for up to 370 million euros.
For these stories and more deals-related news from Reuters, click here.
And here’s what we found in Thursday’s papers:
* ViaSat Inc (VSAT.O), which provides satellite and other wireless networking systems, has agreed to buy Wild Blue Communications Inc for more than $565 million, the Wall Street Journal reports. The deal is a combination of $440 million in cash and $125 million in new Viasat shares. Wild Blue is owned by Liberty Media Corp (LINTA.O).
* British Airways (BAY.L) has a chance of finalising its proposed merger with Iberia (IBLA.MC) by the end of the year and is also keen to make an offer for BMI, BA Chief Executive Willie Walsh told the Financial Times.
* Hershey Co (HSY.N) “remains stymied” in its ability to assemble a takeover offer for Cadbury Plc (CBRY.L), leaving Kraft Food Inc (KFT.N) as the sole bidder for the British confectioner, the Wall Street Journal reports.
from Commentaries:
Consolidation Air, nobody’s favourite airline
With airlines around the world struggling to survive the economic downturn, the time should be nearing to break the taboo of consolidation in the sector.
Airlines around the globe face losses of $11 billion in 2009, according to IATA. Margins are expected to fall this year and next, with analysts predicting carriers are likely to struggle for years to reach levels needed to produce an acceptable return for capital market investors.
Societe Generale estimated in a recent note that margins would drop to -3.1 percent in 2010 before recovering to 1 percent in 2011, well short of the 10 percent needed.
Effectively we are back to the ice age of 2001-2.
Eight years ago, the collapse of Sabena and Swissair kicked open the door of cross-border consolidation -- within Europe at least. But while deals like Lufthansa's merger with the Swiss airline allowed for some rationalisation, the merged entities remain hamstrung by national aviation regulations.
Replacing this patchwork of national carriers with viable global companies able to withstand economic shocks is the necessary next step.
The European Union's open skies agreement has shown what is possible. It has allowed M&A to take place within the bloc, and this has led to the creation of four major players -- Air France-KLM, British Airways, Lufthansa and Ryanair.
Air Traffic Control
Japan Airlines announced cuts to its international flight schedule, in line with thousands of layoffs planned over the next year, as it tries to navigate its heavy debt load. But the Japanese national carrier has never been busier with a different kind of traffic.
Air France-KLM has joined the list of would-be suitors, according to a source familiar with the matter. Delta and American Airlines are seen as being in better position to win a stake in JAL — if Japan and the United States can reach an “open skies” agreement.
JAL is Asia’s biggest carrier by revenue, and a deal would help any Western airline gain access to China and other Asian routes via code-sharing agreements. We hear the going price for a minority stake and a code-sharing deal is somewhere in the range of $200 million to $300 million.
American Airlines is JAL’s preferred bidder because it is already linked with the carrier through the Oneworld alliance. But the Japanese government, which is pumping support into the struggling airline, is thought to prefer the financially healthier Delta or Air France-KLM.
JAL is said to be looking to close a deal by the middle of next month.
Christopher Kaufman; DealZone Editor
Deals du Jour
Ford Motor Co has slowed the sale of its Volvo car unit as it plans to open up the auction to losing bidders for General Motors’ Opel, the Wall Street Journal cited a person close to the company as saying.
In other M&A related stories reported by Reuters and other media on Friday:
Russian mobile network Mobile TeleSystems (MBT.N) is set to pay $1.28 billion, or $5.98 per share, for a 51 percent stake in fixed line carrier Comstar (CMSTq.L), newspaper Kommersant reported.
Low-cost carrier Southwest Airlines is preparing a bid to acquire bankrupt Frontier Airlines for a minimum of $113.6 million, exceeding the $108.8 million bid from Republic Airways Holdings. For the Reuters story, click here.
Fantastic web. Keep on rockin, Radu Prisacaru – UK Internet Marketer & Web Developer