Article from Wednesday's Houston Chronicle concerning the possible merger.
Continental, United discussing a merger
An agreement could create the largest U.S. airline
By BILL HENSEL JR.
Copyright 2006 Houston Chronicle
Continental and United Airlines are in preliminary talks regarding a possible merger that could create the nation's biggest carrier.
Talks between the two got under way before US Airways made a hostile bid for Delta Air Lines several weeks ago and then intensified, a source in New York familiar with the talks said Tuesday.
The US Airways bid triggered speculation about the likelihood of additional consolidations in the airline industry. Other carriers likely also are having discussions about their options.
Continental Airlines Chairman and Chief Executive Officer Larry Kellner, who was in Tel Aviv, Israel, on business Tuesday, has said he preferred that the Houston-based airline remain independent.
However, Kellner also has said the carrier would be ready to take action to protect the interests of Continental, one of Houston's largest employers, and its stakeholders.
The city is home to one of the airline's three major hubs.
"If the landscape of the U.S. airline industry does indeed change, we'll do what we need to do to act in the best interests of you, our customers, our shareholders and the communities we serve," Kellner said in a recently recorded message to employees.
United 'not waiting'
United Airlines Chief Executive Glenn Tilton has said there is too much capacity and that consolidation in the industry is needed. He indicated Tuesday that United wasn't sitting idly by while merger talks swirled.
"We are not waiting for opportunities to come to us simply because we haven't identified to you which one works best," the Associated Press quoted Tilton as saying at the conclusion of a management presentation to more than 75 analysts.
Continental spokesman Dave Messing declined to comment Tuesday when asked about a potential merger between his airline, the nation's fourth largest carrier, and United, the second biggest.
Jean Medina, spokeswoman for the suburban Chicago-based airline, also declined to comment late Tuesday.
"We don't comment on rumors or speculation," Medina said.
A factor in any merger involving Continental is that Northwest Airlines holds a so-called "golden share" of Continental, meaning it could stop another airline from taking over the Houston carrier.
Any pairing involving Continental would likely require that Continental be the buyer, which would prevent Northwest from having a say.
How well Continental and United fit together remains to be seen, although some view such a merger favorably.
"The market has always liked this combination and it provides the most international diversification," said CreditSights analyst Roger King in a recent report. "However, integration issues are almost as high as with United/American."
Such integration issues can include such things as putting two disparate corporate cultures together and merging two fleets that have totally different types of aircraft.
'A tremendous partner'
The analyst said in an interview Tuesday that Continental "would make a tremendous partner with United if they could pull it off."
The analyst said there essentially are six big airlines in the U.S., and there could be, at best, two mergers.
"One is a fairly high probability, two is a low probability and three mergers is a longshot," he said.
When it comes to a merger between Continental and United, one key is whether Tilton would take his "pile of non-cash compensation" and turn the airline over to Continental, King wrote in his recent report.
Continental 'on a roll'
"Continental management is on a roll right now, so it is hard to imagine the board throwing its management team under the bus," he wrote.
The industry buzz about consolidation got louder late last week when Northwest Airlines, which is in bankruptcy, asked for permission to hire financial adviser Evercore Partners.
Northwest, which has headquarters outside Minneapolis, said that the hiring of Evercore Partners does not mean that the company has received or is looking for a merger or acquisition opportunity. A message it posted for employees said that the company is engaged in contingency planning.
Richard Rose, a shareholder at Buchanan Ingersoll, who focuses on mergers and acquisitions, said Tuesday that he would expect Delta and Northwest to get together before US Airways and Delta.
"I would think it would be an easy deal to accomplish," Rose said. "That is what I read out of Northwest's hiring of a banker, to see if they can't work on finding financing to be a white knight to Delta, which makes good sense. It was a way to give Delta an alternative to US Airways."
bill.hensel@chron.com