Monday, May 03, 2010

United-Continental merger - Press release detail:
"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.

In class we talk about mergers and acquisitions and try to identify where the gains and losses are coming from. In other words, who are the winners and losers. Typically we find that bondholders, shareholders, or even customers (in case of competition reducing deals) are the losers.

That said, to read the United-Continental press release it appears that this deal is the exception to those rules: all is good and everyone is a winner. Well at least for the day. That said it should be said that the stock price reaction has been a definite Ho-Hum even allowing for information leakage over the past few weeks.

So what could go wrong?

Moreover we regularly talk about the findings that suggest that when a deal is done for shares, it is sometimes the case that it signals overvaluation and the long run performance is negative.

And finally as in any horizontal takeover, there are at least potential anti-trust issues. The NY Times reports these are likely minor in this case, but must still be dealt with as do potentially cranky unions.
"The deal has some major hurdles to clear. The airlines must win approval from the Justice Department’s antitrust division, a challenge given the renewed regulatory zeal in Washington. The merger also needs the backing of employee unions, whose opposition to mergers in the past has undone many of the proposed savings. "
If I were guessing (which I clearly am), my biggest worry would be how the two firms can "get along" operationally. For instance, will managing such a large airline be difficult? Will integration problems cause problems? Time will tell.

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