Lan, Tam to Combine to Create Latin America's Top Carrier
A TAM aircraft
Marcos Issa/Bloomberg
A TAM aircraft taxis at the Congonhas Airport, in Sao Paulo, Brazil.
A TAM aircraft taxis at the Congonhas Airport, in Sao Paulo, Brazil. Photographer: Marcos Issa/Bloomberg
Lan Airlines SA, Latin America’s biggest carrier by market value, agreed to buy Brazil’s Tam SA in an all-stock transaction valued at $3.7 billion.
Tam investors will receive 0.9 Lan shares for each Tam share, the companies said today in a statement. Tam shares surged 28 percent, the most since December 2004. Lan rose the most in two years in Santiago.
The combination follows similar tie-ups between U.S. and European carriers trying to reduce operating costs and increase revenue by offering a broader global market to passengers. Carriers worldwide have been battered in the past two years by record high fuel prices and a drop off of lucrative business travel during the economic slowdown.
“They’ll have vast economies of scale between the two of them and will be able to dilute costs over a higher base of assets and increase margins,” Ed Kuczma, emerging markets analyst at Van Eck Associates, which manages $21 billion in New York including Tam shares, said in a telephone interview. “They could drive prices lower.”
The new company will have combined revenue of $8.5 billion and the transaction will generate about $400 million in annual savings, the airlines said. They will provide service to 115 destinations in 23 countries and will have 200 aircraft scheduled for future delivery. Lan is Latin America’s biggest air carrier by market value.
Management Structure
Lan’s Enrique Cueto will be chief executive officer of the new company, called LATAM Airlines Group SA, while Tam’s Mauricio Rolim Amaro will be chairman. Tam’s controlling shareholders will retain 80 percent of Tam’s voting shares and Lan will own the remaining 20 percent to comply with Brazilian regulations, the statement said. The agreement calls for the delisting of Tam in Brazil.
“We have great admiration and respect for our friends at Tam and have enjoyed many years of collaboration,” Cueto said in the statement. “They share our passion for service, for integrity and our belief in the great potential of the Latin American market.
Lan shares jumped 6.7 percent to a record 13,760 pesos in Santiago trading. Tam climbed to 36.20 reais.
‘‘From a geographic point of view it makes sense as it would allow Lan to enter the Brazilian market,’’ Felipe Mercado, an analyst at Banchile Inversiones, said by telephone from Santiago.
Separate Brands
Both airlines said they will continue to operate as ‘‘distinct airlines and independent brands’’ and keep their respective headquarters. Lan is based in Santiago and Tam in Sao Paulo.
‘‘Lan has a stronger management and financial position,’’ said Fernanda Marques, analyst at Banco do Brasil SA.
Banco BTG Pactual is advising Tam, while JPMorgan Chase & Co. is advising Lan, according to the statement. The transaction is subject to regulatory and shareholder approval.
Chilean President Sebastian Pinera, a Harvard University- trained economist and billionaire investor, owned a 26 percent stake in Lan before he was elected and sold it by March. Pinera held the stake through various holding companies.
Axxion SA, the company through Pinera owned Lan shares, sold 3.3 percent of Lan on March 25 to investors represented by brokerage Celfin Capital SA. 11. He sold 8.6 percent to the Cueto family Feb. 22 and 6.4 percent on the exchange Feb. 25 to Celfin on behalf of a group of institutional and individual investors.
Airline Combinations
Continental Airlines Inc. and UAL Corp.’s United Airlines are awaiting government and shareholder approvals of their stock-swap merger, which was valued at more than $3.2 billion when it was announced May 3.
That combination will become the world’s biggest carrier, based on annual miles flown by paying passengers, displacing Delta Air Lines Inc. Delta moved into the top spot by merging with Northwest Airlines Corp. in 2008.
Annual cost savings and new revenue from the Continental- United tie-up should reach $1 billion to $1.2 billion by 2013, the airlines said. Together, the airlines fly to at least 370 destinations in 59 countries and plan to continue service to all those points.
To contact the reporters on this story: Eduardo Thomson in Santiago at ethomson1@bloomberg.net; Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net
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