Brazilian, Chilean airlines plan merger in $3.7 billion deal

Brazil's national flag carrier TAM SA and Chile's LAN Airlines SA, the continent's largest airline by market value, have announced their non-binding agreement to combine their holdings into a single entity, in another move at consolidation in the global airline industry following similar tie-ups in Europe and in the US to strengthen competitiveness, cut costs and increase revenue. 

The new combination, LATAM Airlines Group would create one of the leading airlines in the world that would offer seamless passenger and cargo services across the continent and around the world, the companies said in a joint statement.

The new group will include affiliates and other holdings of TAM and LAN. Both the airlines will continue to operate under their existing operating certificates and brands and maintain their current headquarters in Sao Paulo and Santiago, the release said.

Under the all-stock transaction, TAM shareholders would be offered 0.90 shares of LATAM for each share of TAM they own. At the present market prices, analysts value the deal at approximately $3.7 billion.

The combination is expected to generate annual synergies of $400 million through realignment of passenger networks, growth in cargo and reduced cost.  

LATAM would retain its listing in the Santiago Stock Exchange and its ADR listing in the New York Stock Exchange (NYSE) with plans to trade its shares in Brazil's Bovespa, while TAM shares would be de-listed in Sao Paulo and in New York on completion of the transaction.