Hopeful to generate increased revenues and cost savings, as well as create the world’s largest airline, US Airways and American Airlines are teaming up to create a merger that could potentially remove American Airlines (AMR) from bankruptcy and improve both companies as a whole. Several other airline companies such as United and Continental have merged successfully, putting them on a path to more revenues rather than a road to recession.
The main idea of a merger is to create shareholder value over and above the sum of the shareholder value of both companies (US Airways and AMR.) According to Bloomberg.com, since AMR filed for bankruptcy in 2011, US Airways’ stock has tripled. Within a bankruptcy policy are different “plans,” and the plan in which AMR underwent for bankruptcy was a reorganization plan – which calls for 120 days to formulate & file a plan of reorganization with the bankruptcy court. AMR has been pushing their reorganization plan deadline to April, to set in stone the merger with US Airways.
So, how exactly does it work when two completely different companies, with different stock prices and shareholders, have to combine businesses efficiently? Set for next week, February 14, a decision is going to be made containing the specific details of the merger, such as how much percentage of each company to stockholders get to keep. A “reliable source” who supports the merger has said that the creditor’s committee, who influence the decision and outcome of the merger, stated the valuation of each airline: (current rumor) American at 75% and US Airways at 25%.
Here is the comparison of two companies done by The Wall Street Journal:
Under a non-disclosure agreement which expires next week, employees and insiders of the company and merger are not allowed to give away any information until legally okay to do so. Terry Maxon who writes an aviation blog under the DallasNews.com website gave an update on the situation on January 28th, where he interviewed Reuters on the merger process. According to them, what’s’ left to decide are the issues of top management and the issue of relative shares, as stated earlier. Currently, AMR’s share price is $1.22 while US Airways is at a comparative whopping $14.56. The merging of the two companies will not only take AMR out of bankruptcy but also let both companies grow into one blossoming company with a particularly large share price. But until February 14th, the final decision and details are still up in the air.