Investing For Dummies | How The Merger Of Two Airlines Shows How To Invest

In the U.S. we often try combining two weak companies to gain strength. In Latin America we see two strong companies go together to get even stronger.

The two largest airlines in Latin America on Friday surprised investors by announcing plans to create a regional giant to compete with major airlines worldwide.According a memorandum of understanding signed on Friday, the Chilean airline LAN Airlines SA launched a tender offer to acquire the shares of TAM, and offer their own actions.

The airline said the combined revenues of both companies in 2009 were U.S. $ 8,500 million, which concluded the agreement, that among the 15 largest airlines in the world, along with rivals like Singapore Airlines and Cathay Pacific Airways Ltd . Ltd. The companies said each share will be exchanged for 0.9 shares of LAN Airlines TAM and the company renamed Chilean LATAM Airlines. TAM's shares and ADRs will be removed from the bag.

In a complex operation that is clearly beyond the realms of online investing for dummies, suffice to say that TAM effectively will become a subsidiary of LAN, TAM, although the controlling shareholders will retain their 80% share of voting shares of the company, which will also retain its own structure.

The two airlines said that the union could generate annual savings of $ 400 million. Analysts said the figure would have been greater if LAN were able to make a full acquisition.
TAM 's shares rose Friday on the population of Brazil Bovespa 27.6% to close at 36.20 reais (U.S. $ 20.45) on the news.

At current prices of the action, the new company will be worth U.S. $ 11,500 million.
Investing for Dummies merchants online can see that the merger will create a pan-regional force that threaten yield and the health benefits of American Airlines, the largest player in the north-south routes, and others in the region. American, a subsidiary of AMR Corp. (AMR), made no immediate comment.

Meanwhile, the merger of the airline TAM, Brazil, Chile and Lan, may require more changes in global alliances. Tam recently joined Star Alliance headed by Lufthansa and United, while Lan is a former member of the Oneworld alliance led by American Airlines and British Airways. The merged company will probably have to choose one of two, or even drop out and join SkyTeam, the alliance led by Delta and Air France third-KLM, which has been trying to increase its presence in the region