United, Continental Airlines Expected to Announce Merger

(WSJ) - Vaughn Cordle, chief analyst at Airline Forecasts LLC, joined us with more on the merger.

Continental Airlines Inc. and UAL Corp.'s United Airlines are expected to announce Monday that they are merging to form the world's largest airline by traffic, people familiar with the matter told the Wall Street Journal Thursday.

The United board is meeting Friday, while Continental's board is meeting Friday and Sunday to discuss the deal, these people said.

These people cautioned that negotiations could fall apart at the last minute as they did in 2008, when Continental backed away. But after a hiccup over pricing the transaction, the talks appear to be on track, they said.

United is in a much different position than two years ago. Earlier this week, United narrowed its first-quarter loss to $82 million, compared with a year-earlier loss of $382 million. Revenue rose by 15 percent, to $4.2 billion.

Those earnings led United to believe it had more leverage in the talks, which were at an impasse this past weekend over the share-price ratio used in a stock-swap transaction.

United, as of last week, wanted the exchange terms to be based on where its stock closes the day before any agreement is signed. But that would lower the value for Continental shareholders, since UAL shares have climbed more than Continental's.

Continental already has agreed in theory to allow the combined airline to be based in Chicago, United's home base, and to retain the United brand.

Source: Wall Street Journal