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WRAPUP 1-A LatAm airline colossus is born with TAM-LAN deal
August 13, 2010 / 10:35 PM / in 7 years

WRAPUP 1-A LatAm airline colossus is born with TAM-LAN deal

5 Min Read

 * TAM-LAN merger would create LatAm's biggest airline
 * All-stock transaction, no financial terms given
 * Will serve booming regional airline passenger traffic
 By Guillermo Parra-Bernal and Brad Haynes
 SAO PAULO/SANTIAGO, Aug 13 (Reuters) - Brazil's TAM and Chile's LAN announced a proposed merger on Friday that would create Latin America's largest airline and compete for the region's booming demand for passengers and cargo.
 The new entity, to be named LATAM Airlines Group, would be created via an all-stock transaction, the companies said in a statement.
 If the transaction is approved by shareholders and regulators, the combined airline would rank as the world's 11th biggest in terms of passenger traffic, serving 46 million passengers annually with 115 destinations in 23 countries.
 LAN's Chief Executive Enrique Cueto will be the CEO of Latam Airlines, while TAM's deputy chairman Mauricio Rolim will be the chairman of the combined company.
 As part of the agreement, TAM shareholders will receive 0.9 shares of LAN for every TAM share in the form of Brazilian depositary receipts. TAM will then delist its shares in Sao Paulo and in New York.
 LATAM will retain its listings on the Santiago stock exchange and the New York Stock Exchange and would seek to list on Sao Paulo's Bovespa.
 The new company will be "a global player for sure," said Caio Pereira Dias, an analyst with Santander Investimento in Sao Paulo. He called the proposed transaction a "tremendous deal" for LAN, and "extremely good" for TAM.
 The proposal comes at a time when millions of people in Brazil, Chile and elsewhere around the region are joining the middle class and starting to fly thanks to robust economic growth that has outperformed most of the developed world in recent years.
 Meanwhile, competition for those passengers has intensified. Colombia's Avianca created another regional giant last year with El Salvador's Taca, while TAM TAM.N has faced challenges from discount carriers within Brazil as well as worsening bottlenecks in the country's civil aviation infrastructure as demand grows.
 The agreement also coincides with a wave of consolidation in the airline industry globally.
 Financial details of the transaction were not immediately disclosed, though LAN LFL.N said the merger would have synergies of about $400 million a year. The companies said that the two carriers, which will continue to fly under their own brands, had combined revenues of $8.5 billion last year and more than 40,000 employees.
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Graphic on the two airlines: link.reuters.com/gug94n   FACTBOX Top global airlines by passengers carried [ID:nN13223379]
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 LAN said the merger could take between six and nine months to complete.
 The two airlines would appear to compliment each other. LAN has a strong presence in other South American countries including Peru and Argentina, while TAM's routes to Europe are highly profitable.
 Both carriers use planes from Europe's Airbus for short-haul routes, and a combination of Airbus and Boeing aircraft for long-haul routes -- a mix that should give the new entity considerable leverage when negotiating future aircraftpurchases.
 TAM, LAN SHARES SOAR
 Shares in both companies soared as news of the transaction broke. TAM shares TAMM4.SA rose 27.6 percent to close at 36.20 reais in Sao Paulo. LAN LAN.SN rose 7.7 percent to 13,900 Chilean pesos in Santiago.
 The companies said that Brazilian firm BTG Pactual is acting as the financial advisor for the deal for TAM. JP Morgan Securities Inc. is the financial adviser to LAN.
 Other examples of recent consolidation in the global airline industry include the merger approved last month between Spain's Iberia IBLA.MC and British Airways BAY.L, plus a planned fusion of UAL Corp UAUA.O and Continental Airlines Inc. (CAL.N).   (Additional reporting by Alonso Soto in Santiago, Writing by Brian Winter, Editing by Todd Benson, Leslie Gevirtz)   

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