US Airways makes merger offer to AMR



REUTERS

Published — Sunday 9 December 2012

Last update 9 December 2012 3:07 am

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NEW YORK: US Airways Group Inc. has made a formal merger proposal to American Airlines parent AMR Corp. and its creditors that could value the combined airline at around $ 8.5 billion, two people familiar with the matter said on Friday.
Details of the proposal emerged as American Airlines pilots voted to ratify a new union contract on Friday, ending a years-long labor dispute and stabilizing the carrier as it tries to emerge from bankruptcy.
Under an all-stock merger that US Airways proposed in mid-November at a meeting with AMR's unsecured creditors committee, AMR creditors would own 70 percent of the merged company and US Airways shareholders 30 percent, the people said.
US Airways and AMR are negotiating toward a potential merger agreement that the smaller rival hopes could come as soon as January, one of the people added, asking not to be named because the matter is not public.
The combined AMR and US Airways could have a value similar to Delta Air Lines Inc., which has a market capitalization of around $ 8.5 billion, the person said.
At the same time, AMR is still pursuing a plan to emerge from bankruptcy proceedings as an independent airline, which will be compared against the merits of a merger with US Airways, the people said.
The companies have yet to narrow differences on a number of significant issues before any deal could be agreed, including how much of the combined carrier each side should own, the people said.
AMR creditors think they should get an equity stake of closer to 80 percent in a merged entity, rather than the 70 percent proposed by US Airways, the people said. AMR and US Airways also disagree on potential cost and revenue benefits from a merger as well as labor integration challenges, they added.
In a note to American Airlines workers, AMR CEO Tom Horton said the company is weighing whether a merger could "create value for our owners and a positive outcome for our people and our customers. We expect to have a conclusion on this soon."
Representatives of US Airways and the creditors committee declined to comment. The Wall Street Journal reported details of US Airways' proposal earlier on Friday.
The new labor contract, approved by nearly three-quarters of the AMR pilots who voted, gives the Allied Pilots' Association a 13.5 percent equity stake in AMR and offers what the union sees as a path to "industry-standard" pay, union spokesman Dennis Tajer told Reuters.
AMR filed for bankruptcy in November 2011, primarily due to high labor costs, and said it needed to cut those costs by $1 billion a year. It achieved concessions from its ground workers and flight attendants but remained at odds with pilots in bitter labor talks that date to 2006.
AMR creditors had deemed labor peace a major priority, saying uncertainty over contracts could make it difficult for creditors and potential investors to assess the company's post-bankruptcy viability.
Friday's vote could be seen as addressing that concern and providing AMR a clearer path toward exiting Chapter 11.
The pilots had been working under strict labor terms imposed unilaterally by AMR as part of its bankruptcy process while negotiations dragged on. The pilots struck down a previous contract offer in August, which at the time AMR had framed as its "last, best" offer.
How the company will look when it exits bankruptcy is still unclear. The pilots' union says it has lost faith in AMR management, led by Horton, and strongly supports a US Airways takeover.
"This ratified agreement should not in any way be viewed as support for the American standalone plan or for this current management team," Tajer said. "This contract represents a bridge to a merger with US Airways."
At least one large group of bondholders, including JPMorgan Chase & Co., Pentwater Capital Management and York Capital Management, has expressed interest in providing an equity infusion to fund AMR as a standalone entity.
The group was strengthened recently when other significant stakeholders, including Marathon Asset Management, joined forces with it, according to court papers filed by the group on Thursday.

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