Mergers and acquisitions : the case of United and Continental Airlines

Abstract

The US airline industry is characterized to be an industry with a high competition mainly in the domestic segment. In order to face this competition several airlines entered in mergers and acquisitions (M&A) deals as way to consolidate its position in the market. This trend was accentuated with the global recession that brought several challenges to this industry. For this reason, the merger between United and Continental Airlines, two major US carriers, are being planned and its valuation and analysis are the focus of the present dissertation. By taking in account the current conditions of both airlines are estimated potential synergies of around 37,4% of the merged airline’ equity value without synergies which represent 69% of the current Continental’s market capitalization, the airline seen as the target. Given this, it is suggested an offer with a premium of 21,6% over the current Continental’s market capitalization which will constitute a deal of $3,018 million, which is here suggested to be paid all in stock.