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Birthday Call to United Chief Led to Air Merger in Three Weeks

Glenn Tilton and Jeff Smisek
Glenn Tilton, chief executive officer of United Airlines parent UAL Corp., and Jeff Smisek, chief executive officer of Continental Airlines Inc., shake hands during merger news conference in New York. Photographer: Jin Lee/Bloomberg

May 3 (Bloomberg) -- The phone call that would result in a merger creating the world’s largest airline came on UAL Corp. Chief Executive Officer Glenn Tilton’s 62nd birthday.

Continental Airlines Inc. CEO Jeff Smisek had read press reports that UAL Corp.’s United was in talks with US Airways Group Inc. He didn’t want to lose Houston-based Continental’s “best partner for the future,” he said today in an interview.

“I gave Glenn a call and told him I was a much prettier girl,” said Smisek, 55, who will become CEO of the combined carrier.

That April 9 conversation marked the start of three weeks of intense negotiations that would span several of the airlines’ hub cities, including Los Angeles, Cleveland and New York, said people familiar with the matter, who asked not to be identified because the meetings were private.

Tilton was traveling in Santa Fe, New Mexico, on the day he received Smisek’s call, “which happened to be my birthday,” he told analysts on a conference call.

Today’s merger agreement calls for a stock swap valued at more than $3 billion. United’s name and Chicago headquarters will be retained, and Tilton will be nonexecutive chairman until the end of 2012 or two years after the deal’s closing, whichever is later.

Smisek and Tilton succeeded where the airlines had failed in 2008, when the companies came close to a merger agreement before Continental, then led by CEO Larry Kellner, abandoned the talks.

Los Angeles, Cleveland

The week after the initial phone call, Tilton and UAL Chief Financial Officer Kathryn Mikells met in Los Angeles with Smisek and his CFO, Zane Rowe, said a person with knowledge of the meeting. The participants settled on most terms of the deal, including the provision for a merger of equals with no control premium, the person said.

Also on the executives’ itinerary was a meeting in Cleveland, where Continental lead director Henry Meyer III lives and runs KeyCorp, Ohio’s second-largest lender, the person said.

Choosing a date on which to value each airline’s stock became a sticking point, Tilton and Smisek said today on a conference call. The accord for each Continental share to be exchanged for 1.05 UAL shares was reached at an April 27 meeting at a Radisson hotel in Memphis, Tennessee.

“I had no idea,” said Richard Markham, the hotel’s general manager. “They must have been incognito.”

Close to Graceland

The Radisson was built in the mid-1970s and has 211 guest rooms and a bar and restaurant called Cayenne’s, Markham said in an interview. The property is located about 3 miles (4.8 kilometers) from Graceland, the former home of Elvis Presley.

“Jeff chose an illustrious venue, the airport Radisson,” Tilton said in an interview. “I was given a memento of that occasion, a plastic passkey, nicely framed.”

Tilton’s gift to Smisek was a pair of cuff links with the colors of both airlines, a person familiar with the matter said.

After each carrier’s board met by phone yesterday to approve on the deal, Tilton said he and United’s advisers dined on steak, champagne and scotch at the Palm restaurant in midtown Manhattan. Smisek said he ate bangers and mash and sipped pinot noir at his hotel and then went to bed.

To contact the reporters on this story: Zachary R. Mider in New York at zmider1@bloomberg.net; Mary Jane Credeur in New York at mcredeur@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net.

To contact the editor responsible for this story: Jeff St.Onge at jstonge@bloomberg.net; Jamie Butters at jbutters@bloomberg.net

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