There seems to be a lot of different sources providing information on the widely reported discussions between US Airways and United regarding another corporate transaction attempt by the two business partners. Standard & Poors Airline analyst Jim Corridore made the following comments today reiterating a “hold opinion†on both companies shares.
S&P REITERATES HOLD OPINIONS ON SHARES OF UAL CORP
Unconfirmed reports from Reuters and other outlets report talks between UAUA and US Airways have been put on hold, with labor integration among the sticking points. We think a merger would have allowed capacity and cost cuts that are necessary in a high fuel price environment. We are cutting our target price to 10 from 18, taking into account the likely absence of merger-related price support. We see high risk related to energy prices and rising losses at UAUA. But the shares have already dropped sharply this year, factoring in much of this risk, in our view.
S&P REITERATES HOLD OPINION ON SHARES OF US AIRWAYS GROUP
Unconfirmed reports from Reuters and other media outlets say talks between LCC and United are on hold. Among the sticking points is workforce integration. We thought a merger represented an opportunity to cut costs in a high fuel price environment. Near $130/barrel, oil is a drain on LCC's cash. We are cutting our 12-month target price to 6 from 8. LCC has little debt maturities or capex requirements over the next several years and we don't think bankruptcy is likely over the next year. Thus, we think the share price discounts much of the risk LCC faces.
Here are some key quotes from sources who spoke with the news media on conditions of anonymity:
- The Pittsburgh Post-Gazette indicated a source familiar with the situation said today that talks have been “fizzling out†and could be “over for now."
- The New York Times reported today that talks between United and US Airways "appear to have fallen apart" but could be revived.
- Reuters wrote that talks have "slowed" but not ended.
- As far as the social issues, the Post-Gazette indicated the two sides were not able to agree on issues of leadership, with United wanting Mr. Parker to share power with Mr. Tilton, at least for awhile. United, according to this source, asked US Airways to consider the model of J.P. Morgan Chase and Jamie Dimon, who came in as president after a mid-2004 acquisition of Bank One and waited until the end of 2005 to become CEO. US Airways, on the other hand, wanted Mr. Parker as CEO right away, asking United's Mr. Tilton to consider the model of Southwest Airlines, where founder Herb Kelleher served as chairman and Gary Kelly was CEO. Earlier this month, Mr. Kelleher gave up his chairman's seat to Mr. Kelly. “Doug told Glenn, 'If I stay I need to be CEO and nothing else,'" this source said. Mr. Parker, this source added, was also willing to step down from the company altogether if that was the only way to make the deal work. It was either be "CEO or step down."
- The Post-Gazette indicated today United held a board meeting on May 15, and US Airways expected the issue of a merger to be decided at that point, this source said. But United chose "none of the above," not deciding "for or against" a merger.
It appears the parties have not made a decision on whether or not to proceed and “social and labor issues†appear to be key roadblocks to the fifth “corporate transaction†attempt between the two companies during the past 13 years. However, the news media said talks have been “fizzling out and could be over for now (Pittsburgh Post-Gazette),†“appear to have fallen apart but could be revived (NY Times),†and “talks have slowed but not ended (Rueters).â€
Therefore, with United’s Board reportedly undecided if it’s "for or against" a merger, no joint decision made on the new company’s “executive suite†structure, and multiple reports that the talks could be revived it appears the decision on whether or not to move forward on a combination of the business enterprises has not been decided one way or another. Thus, a deal may or may not proceed with real capitulation on the management structure apparently existing between the companies leaders.
Regards,
USA320Pilot
