United-US Airways Merger Fails to Take Wing
N E W Y O R K, July 2, 2001 -- UAL's United Airlines and US Airways said today thatthey are in discussions to abandon their planned $4.3 billionmerger.
United Airlines, the nation's second-largest carrier,believed that it would no longer be able to get the proposalpast federal antitrust enforcers, scuttling a merger firstannounced in May of last year that would have shaken up theU.S. airline industry. United had promoted the agreement's competitive andconsumer benefits, but it faced a barrage of criticism overindustry concentration crimping competition and hiking airfares. The announcement came after a person familiar with the approvalsaid United is dropping the acquisition because the carrier isconvinced the merger won't win regulatory approval.
"UAL Corporation and US Airways Group have confirmed thatthey are in discussions regarding the possibility of terminatingthe proposed merger between the two companies," the airlines said.
The carriers said they would make no further comment for thetime being.
Investors Skeptical
The source, speaking on condition of anonymity, said theUAL-owned United informed US Airways on Friday that it wanted todiscuss terminating the 13-month-old agreement. The personconfirmed reports in several Monday papers, including the ChicagoTribune, The New York Times and USA Today.
United, the nation's second-largest airline, will have to pay USAirways a $50 million breakup fee if it ends the agreement afterAug. 1. Before that date, the breakup fee is substantially higher,but United is asking to pay only $50 million.
Experts had been expecting the deal to fall through because ofantitrust concerns, said Ray Neidl, an analyst with ABN Amro Inc.
Other major airlines probably won't be interested in trying tobuy US Airways because they would face the same regulatory scrutinywith little chance of overcoming it, he said.
Attempts to End Anti-Trust Concerns
Helane Becker, an airlines analyst with Buckingham ResearchGroup, added there clearly was "no way" the deal was goingthrough.
"It was taking too long and there was no way the JusticeDepartment would approve it," she said.
In an effort to ease anticompetitive concerns and ensuregovernment approval, United agreed in January to sell some USAirways assets to American Airlines, including half of US Airways'Washington-New York-Boston shuttle.
But Justice Department lawyers appeared to remain concernedabout the concentration of market power in Washington and othermarkets. Transportation Secretary Norman Y. Mineta said last monthhe expected the government to reject the proposed merger.
A weakening economy is also hurting UAL, and the airline hasbecome reluctant to engage in a costly, complicated merger. Unitedsigned a contract with its pilots last year on the assumption themerger would be approved. The pact gave pilots 45 percent raisesover four years.
Wall Street Reacts
United reported a worse-than-expected first quarter loss of $313million on revenues of $4.42 billion and has already said itexpects a double-digit decline in revenue for the second quarter.
United would have paid $4.3 billion in cash for US Airwaysshares, or about $60 a share, nearly triple of US Airways' currentstock price.
Shares of US Airways were down $3.67, or 15 percent, to $20.63in late morning trading Monday on the New York Stock Exchange,while shares of UAL were up 47 cents to $35.62, well off their52-week high of $61.62.
Neidl said the wide spread between the US Airways' share priceand what United was going to pay was a clear sign that the deal wasin danger.
"The market was pretty much discounting any takeover," hesaid.
The Associated Press and Reuters contributed to this report.