United and Continental announces definitive merger

HOUSTON AND CHICAGO, May 3,
2010 – Continental (NYSE: CAL)
and United (NASDAQ: UAUA)
today announced a definitive
merger agreement, creating the
world ’s leading airline with
superior service to customers,
expanded access to an
unparalleled global network
serving 370 destinations around
the world, enhanced long-term
career prospects for employees,
and a platform for improved
profitability and sustainable
long-term value for
shareholders. The all-stock
merger of equals brings together
two of the world ’s premier
airlines, creating a combined
company well positioned to
succeed in an increasingly
competitive global and domestic
aviation industry.
Glenn Tilton, chairman, president
and chief executive officer of
UAL Corp., will serve as non-
executive chairman of the
combined company ’s Board of
Directors through December 31,
2012 or the second anniversary
of closing, whichever is later. Jeff
Smisek, Continental ’s chairman,
president and chief executive
officer, will be chief executive
officer 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.
The combined organization will
draw on the talented group of
leaders from both companies,
and key management positions
will be determined prior to the
transaction ’s closing. The
combined company’s
management team is expected to
include an equitable and
balanced selection of executives
from each company with the
intention that each company will
contribute roughly equal
numbers. In addition to Smisek
and Tilton, the 16-member Board
of Directors will include six
independent directors from each
of the two companies and two
union directors required by
United’s charter.
The holding company for the
new entity will be named United
Continental Holdings, Inc. and the
name of the airline will be United
Airlines. The marketing brand will
be a combination of the brands
of both companies. Aircraft will
have the Continental livery, logo
and colors with the United name,
and the announcement
campaign slogan will be “Let’s Fly
Together.” 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. Additionally, the CEO
will maintain offices in both
Chicago and Houston.
Tilton said, “Today is a great day
for our customers, our
employees, our shareholders and
our communities as we bring
together our two companies in a
merger of equals to create a
world-class and truly global
airline with an unparalleled
network serving communities
worldwide with outstanding
customer service. Building on
our Star Alliance partnership, 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. This
combination will provide a
strong platform for sustainable,
long-term value for
shareholders, opportunities for
employees, and more and better
scheduled service and
destinations for customers.
Knowing and respecting our
colleagues at Continental as we
do, we are confident that
together we can compete
successfully in what is now,
clearly, a global marketplace. ”
Smisek said, “This combination
brings together the best of both
organizations and cultures to
create a world-class airline with
tremendous and enduring
strengths. Together, we will have
the financial strength necessary
to make critical investments to
continue to improve our
products and services and to
achieve and sustain profitability.
We have forged a highly
collaborative partnership with
United over the past two years
as we prepared for and
executed a seamless transition to
Star Alliance, an important
achievement that gave us
valuable experience in working
together and built mutual respect
between our two companies. I
look forward to working with
the employees of both
companies around the world, so
our airline can become an even
stronger global competitor,
deliver sustainable profitability,
achieve best-in-class customer
service under our unified brand,
create long-term career
opportunities and deliver
increased value for
shareholders. ”
The combination of United and
Continental brings together the
two most complementary
networks of any U.S. carriers,
with minimal domestic and no
international route overlaps. The
combined company will offer
enhanced service to Asia, Europe,
Latin America, Africa and the
Middle East from well-placed
hubs on the East Coast, West
Coast, and Southern and
Midwestern regions of the
United States. The combined
company will have 10 hubs,
including hubs in the four largest
cities in the United States, and
will provide enhanced service to
underserved small- and medium-
sized communities. The
combined carrier will continue 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.
Employees will benefit from
improved long-term career
opportunities and enhanced job
stability by being part of a
larger, financially stronger and
more geographically diverse
carrier that is better able to
compete successfully in the
global marketplace. The
companies believe the effect of
the merger on front-line
employees will be minimal, with
reductions coming principally
from retirements, attrition and
voluntary programs. The
company will provide employees
with performance-based
incentive compensation
programs focused on achieving
common goals. The combined
company will be focused on
creating cooperative labor
relations, including negotiating
contracts with collective
bargaining units that are fair to
the company and fair to the
employee.
On a pro forma basis, the
combined company would have
annual revenues of
approximately $29 billion based
on 2009 financial results, and an
unrestricted cash balance of
approximately $7.4 billion as of
the end of first quarter 2010,
including United ’s recently closed
financing transaction.
In the merger, Continental
shareholders will receive 1.05
shares of United common stock
for each Continental common
share they own. United
shareholders would own
approximately 55% of the
equity of the combined
company and Continental
shareholders would own
approximately 45%, including in-
the-money convertible securities
on an as-converted basis.
The merger is expected to
deliver $1.0 billion to $1.2 billion
in net annual synergies by 2013,
including between $800 million
and $900 million of incremental
annual revenues, in large part
from expanded customer
options resulting from the
greater scope and scale of the
network, and additional
international service enabled by
the broader network of the
combined carrier. Expected
synergies are in addition to the
significant benefits derived from
the companies ’ existing alliance
and expected from their future
joint venture relationships. The
combined company is also
expected to realize between $
200 million and $300 million of
net cost synergies on a run-rate
basis by 2013. One-time costs
related to the transaction are
expected to total approximately
$1.2 billion spread over a three-
year period.
The combined airline will have
the most modern, fuel-efficient
fleet (adjusted for cabin mix)
and the best new aircraft order
book among major U.S. network
carriers. It will have the financial
strength to enhance customers’
travel experience by enabling it
to invest in globally competitive
products, upgrade technology,
refurbish and replace older
aircraft, and implement the best-
in-class practices of both airlines.
The merger will create the
industry ’s leading frequent flyer
program, offering vast
opportunities for customers to
earn and redeem miles, including
on Star Alliance partners.
United and Continental are
members of Star Alliance, the
world ’s largest airline network.
Star Alliance customers will
continue to benefit from service
to over 1,000 destinations, more
connecting opportunities,
additional scheduling flexibility
and access to leading reciprocal
frequent flyer and airport lounge
benefits with Star Alliance’s 24
other member airlines around
the world.
The merger, which has been
approved unanimously by the
Boards of Directors of both
companies, is conditioned on
approval by the shareholders of
both companies, receipt of
regulatory clearance, and
customary closing conditions.
The companies expect to
complete the transaction in the
fourth quarter of 2010. During
the period between signing and
closing of the merger, the CEOs
of both companies will lead a
transition team, which will
develop a specific integration
plan.