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AMR Corporation Message Board

  • hageneriksson hageneriksson Jan 9, 2013 6:11 PM Flag

    Barron's article from one hour ago

    Two items today suggest that executives at American Airlines parent AMR (AAMRQ) are clearing the way for the long-mooted merger with US Airways (LCC).

    First up is a story by The Wall Street Journal’s Mike Spector, who writes:

    American Airlines bondholders this week signed confidentiality agreements so they can examine nonpublic information and weigh whether the airline should merge with rival US Airways Group Inc. or emerge from bankruptcy proceedings as an independent company, said people close to the talks.

    The bondholders hold more than $2 billion in debt issued or backed by American and its parent, AMR Corp., making them an influential subset of creditors, who also include labor unions and suppliers. The bondholders own nearly enough of the airline’s obligations to block any path out of bankruptcy protection that they dislike, according to the people and court documents.

    As Spector notes, CEO Tom Horton told staff last week that AMR is weeks from deciding what to do — either going it alone or merging with US Airways to create the largest US airline by traffic, something that you could argue they have no choice but to do if they want to compete with the likes of United Continental (UAL) and Delta Air Lines (DAL).

    The other piece of news is this letter from bankruptcy lawyer Harvey Miller to the Justice Department, which says that AMR may now support the formation of an equity committee that could recover some value for shareholders.

    Why does this matter? Allow the analysts at BTIG to explain:

    An Equity Committee formed before reemergence [from bankruptcy], this late in the game, may point to a pre-reemergence [merger with US Airways]. The equity holders, prior to any plan vote and accompanying cramdown, are still the owners of American and their approval is necessary for a merger. And if American stakeholders need their approval, the equity holders need some consideration in exchange for their cooperation.

    From American’s perspective, getting a deal done ahead of reemergence on terms that will preserve the company’s tax assets for the combined firms’ benefit requires an organized group of equity holders who can act unanimously in a timely fashion. The perfect vehicle for that is a formally organized Equity Committee.

    So there you have it. Then again, maybe you don’t, as the Charlotte Observer reports:

    Robert W. Mann, an aviation consultant who once worked at American, believes that AMR will try to “run the clock” – avoid announcing a merger decision for as long as possible because rejecting US Airways’ overtures could trigger an immediate hostile takeover bid. If the economy and the airline industry grow stronger, a delay gives AMR more time to post better financial results and boost Horton’s argument that he’s already fixing the company, Mann says.

    The betting here is that whatever Horton wants, a merger is the likely (not to mention sensible) outcome. Shares of AMR jumped 43% today, albeit that means a 39 cents rise. Meanwhile shares of US Airways closed down 0.2%.

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    • their approval of the merger - at least according to the BTIG analyst.

      At this point nobody seems to have a clue how much this could be but most likely current shareholders will be offered a small stake in the equity of the combined company - perhaps as low #$%$ - 10%. But again nobody knows what the market value of a combined LCC / AMR might be. Assuming a 10% stake and a $5 bln market cap for LLCAMR the current share price looks pretty close to this scenario.

      But the final outcome might look pretty much different so it doesn't make much sense to speculate any further at this point.

      AMR also announced another set of good operating results after the close.

      With the stock closing at a new 52-week high on 18x average daily volume it looks quite save that there will be further gains tomorrow morning as obviously some late day buying pressure remained unsatisfied. Would expect another double digit run at the start of the session before some profit taking might kick in. No prediction for where the stock might end the day tomorrow.