This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why the United/US Airways Merger Collapsed

TEMPE, Ariz. TheStreet) -- Before US Airways (LCC) broke off merger talks with United (UAUA) on Thursday, the two airlines had talked for months and had reached agreement on many key issues including the selection of Glenn Tilton as CEO of the merged company, say people familiar with the talks.

But United executives were uncomfortable with the requirement that because US Airways pilots have a change of control provision in their contract, the deal would have to be structured in a way that US Airways acquired United, said the people, who could not be named because they were not authorized to speak about the negotiations.

The United executives' feeling was that it would be extremely difficult for US Airways to assemble the financial resources needed to amply reward shareholders in a far larger company with three times the market capitalization.

Nevertheless, the talks progressed. Eventually, the two sides "agreed the company would be named United (and) headquartered in Chicago, would have two thirds of the board from United and (would have) Tilton as CEO," a source said. US Airways CEO Doug Parker was willing to step aside, the source said, noting: "Doug was going to act in what he believed to be the best interest of his company and his employees."

United's preference to merge with Continental (CAL) was, obviously, not news to US Airways executives. But those executives believed they should go ahead and pursue a deal that would so clearly benefit the company. Parker, like predecessor Stephen Wolf, believes that US Airways is not well-positioned for long-term survival because it is neither a major global airline nor a low-cost domestic airline.

Parker was also well aware that the necessity to structure a deal as a US Airways acquisition was a problem. On March 17, at the conclusion of a meeting with pilots at US Airways' Charlotte training center, he raised the topic, telling pilots that the change of control provision was a barrier to any merger the carrier might pursue. The provision snaps wages back to a pre-2000 level, far higher than today's pilot wages, if a change of control occurs.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
LCC $0.00 0.00%
DAL $45.73 2.17%
AAPL $127.60 2.28%
FB $83.09 2.87%
GOOG $535.38 2.16%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs