United Airlines, Continental strike merger agreement

(Crain's) — United and Continental airlines have reached an agreement on a merger and expect to announce a deal by Monday, pending approval by their boards, a source briefed on the matter says.

United’s board is set to meet Friday to discuss the deal, the source told Crain's, and Continental’s board is expected to vote Sunday.

Under terms of the deal, Continental shareholders will receive 1.05 shares of United stock for each share of the Houston-based airline, according to a source.

That would value the all-stock transaction at about $3.3 billion. Two years ago, Delta Air Lines and Northwest airlines merged in a $3.1 billion deal.

A deal isn’t assured. Continental’s board voted down a merger with United two years ago in a Sunday afternoon vote.

But that seems less likely now. Then, the industry was headed into a recession, and United’s financials were deteriorating. Now, air travel is beginning to recover, and United is leading the way, enjoying the biggest gains in revenue among the traditional carriers.

Continental and United also feel pressure to keep pace with Delta Air Lines and Northwest Airlines, which merged two years ago to create the nation’s biggest airline.

The all-stock deal would create the nation’s biggest airline and give United CEO Glenn Tilton the merger he’s sought since taking the helm of United’s Chicago-based parent, UAL Corp., in 2002.

Chicago is expected to end up a big winner in the deal: The new airline would retain the United brand and have its headquarters here. Continental CEO Jeff Smisek would be CEO, and United CEO Glenn Tilton would be chairman.

The two airlines have been talking about a deal since mid-February after Mr. Tilton told the Financial Times that he was interested in renewing merger talks with Continental and started talking up the virtues of mergers and consolidation in speeches and interviews. The two airlines formed an alliance after previous merger talks ended.