Bloomberg News

Lan Announces Start of Tam Tender Offer in Brazil and U.S

May 10, 2012

Lan Airlines SA (LAN) begins an offer for shares in Brazilian carrier Tam SA today in a transaction that would create the world’s largest airline by market value.

The $3.7 billion share swap received authorization from U.S. securities regulators yesterday after Brazilian authorities gave their clearance May 7, the Santiago-based carrier said in a statement on the website of Chile’s securities regulator.

The tender offer will run through June 11 simultaneously in Brazil and the U.S. The combined company will have a market value of about $13 billion, overtaking Air China Ltd. (753) and Singapore Airlines Ltd. (SIA) as the world’s biggest carrier.

“This means that the merger will finally materialize and Lan will be able to consolidate Tam’s figures in the second quarter,” said Mabel Weber, an analyst at Bice Inversiones in Santiago. “The first months we’ll surely see more integration costs than synergies, but the company should be able to see benefits from next year.”

Tam shares will be swapped for stock in a holding company called Holdco II, which will combine with Lan to form Latam Airlines. Under terms announced August 2010, investors will get the equivalent of 0.9 Lan share for each Tam share.

Lan shares rose 0.6 percent to 13,430 pesos at 10:08 a.m. in Santiago trading. Tam gained 1 percent to 46.75 reais at 10:38 a.m. Sao Paulo time and has surged 64 percent since the day before the transaction was announced. Lan gained 4.2 percent during the same period.

Company Ratings

Tam trades at a 4.5 percent discount to the all-stock offer, according to data compiled by Bloomberg. Lan has a BBB rating, according to Fitch Ratings, while Tam has been rated B+ by Standard & Poor’s and Fitch.

Lan won over Chile’s antitrust tribunal in September and Brazilian regulators in December, for a deal that will give it almost half of routes in Brazil. With Tam, Lan is gaining an airline that is 39 percent larger by sales, according to data compiled by Bloomberg. Tam posted revenue of $7.8 billion last year compared with Lan’s $5.6 billion.

The companies plan to develop the cargo business from Brazil. They estimate savings from the tie-up at $600 million to $700 million four years after completing the transaction.

Lan operates a fleet of 135 passenger aircraft and 14 dedicated freighters, while Tam has 156 planes, according to a joint statement distributed in January.

To contact the reporter on this story: Eduardo Thomson in Santiago at

To contact the editor responsible for this story: David Papadopoulos at

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