Bloomberg News

Lan Purchase of Tam Clears Final Regulatory Hurdle in Brazil

December 15, 2011

(Updates with closing share prices in fifth paragraph.)

Dec. 14 (Bloomberg) -- Lan Airlines SA’s planned $3.2 billion acquisition of Tam SA was approved by Brazil’s antitrust regulator, clearing the final regulatory hurdle for the formation of the world’s second-largest carrier.

The regulator, known as Cade, approved the transaction in a unanimous vote in Brasilia today. Approval is contingent on some limits for flights between Santiago and Sao Paulo. The regulator saw no need to restrict the Sao Paulo-to-Lima and Sao Paulo-to- Buenos Aires routes, said Cade member Olavo Chinaglia, who was in charge of preparing the final report on the deal.

Chile’s antitrust tribunal approved the tie-up on Sept. 21, imposing conditions including capping Santiago-Sao Paulo fares until they exchange four daily slots in Sao Paulo’s Guarulhos airport with other carriers. Cade’s conditions included giving up two pairs of slots in the Sao Paulo-Santiago route, Tam said in an e-mailed statement.

“Given the restriction was less pronounced than Chile’s, this give some comfort to the companies,” Rene Medrado, Lan’s attorney, told reporters in Brasilia today.

Tam shares rose 1.5 percent to 36.33 reais in Sao Paulo. Lan climbed 0.8 percent to 12,160 pesos in Santiago.

Santiago-based Lan agreed to buy Tam in an all-stock transaction announced in August last year. The combination follows similar tie-ups among U.S. and European carriers trying to reduce operating costs and increase revenue by offering a broader global market to passengers.

Lan is appealing the Chilean antitrust conditions in the country’s Supreme Court and expects to close the deal in the first quarter of 2012. Shareholders will vote Dec. 21.

Overtaking Singapore

A Lan-Tam combination would have a market value of $11 billion, overtaking Singapore Airlines Ltd. as the world’s second-largest airline after Beijing-based Air China Ltd., according to data compiled by Bloomberg. The deal would give Lan, already Latin America’s biggest airline by value, almost half of routes in Brazil, the region’s largest economy, and a network of more than 115 destinations in 23 countries.

Lan will decide on whether to remain a member of the Oneworld group or join Star Alliance by the end of the first half of next year, Lan President and Chief Operating Officer Ignacio Cueto said on Nov. 17 in Rio de Janeiro.

Under the August 2010 agreement, investors would receive 0.9 Lan share for each Tam share held. Lan would have about 70 percent of the combined carrier, Latam Airlines Group.

Operating Separately

Lan’s Enrique Cueto will become chief executive officer of the new company, while Tam’s Mauricio Rolim Amaro will be chairman. Both airlines would continue operating separately with their own brands.

With Tam, Lan is gaining an airline that is 40 percent larger by sales and will give it one of the leading positions in Brazil, the world’s seventh-largest economy according to data compiled by Bloomberg.

--With assistance from Andre Soliani in Brasilia. Editors: Jessica Brice, James Attwood

To contact the reporters on this story: Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net; Eduardo Thomson in Santiago at ethomson1@bloomberg.net

To contact the editor responsible for this story: Jessica Brice at jbrice1@bloomberg.net


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