LAN - TAM Merger approval process

Lan Airlines SA (LAN)’s planned purchaseof Brazil’s Tam SA (TAMM4) to form the world’s second-biggest carrier bymarket value was approved by Chile’s antitrust tribunal withseveral conditions.
Tribunal de Defensa de la Libre Competencia, or TDLC as thecourt is known, gave final Chilean clearance for the transactionin a split vote, according to a statement sent by e-mail today.Conditions include Lan and Tam opening up their frequent flyerprogram to other airlines, exiting one of their global alliancesand capping Santiago-Sao Paulo fares until they exchange fourdaily slots in Sao Paulo’s Guarulhos airport with othercarriers. The tie-up still requires Brazilian approval.
“The measures seek to promote effective competition in theChilean airline market, and while that doesn’t occur, protectconsumers from the effects of concentration,” the TDLC said inits statement.
Lan was little changed at 13,020 pesos in Santiago tradingat 1:33 p.m. New York time after gaining as much as 4.1 percent.Tam advanced 4.1 percent to 38.15 reais and earlier jumped 12percent, the most since August 2010 when the deal was announced.
“At a first glance the conditions don’t seem toorestrictive,” Jorge Sepulveda, an analyst at Santiago-basedEuroamerica Corredores de Bolsa SA, said by telephone. “Theconditions are mostly related to defending competition in thelocal market and are in line with what we expected.”

Biggest Market

A Lan-Tam combination would have a market value of $12billion, overtaking China Southern Airlines Co. and SingaporeAirlines Ltd. as the world’s largest airline after Air ChinaLtd., according to data compiled by Bloomberg. The deal wouldgive Santiago-based Lan 41 percent of the domestic airlinemarket in Latin America’s largest economy and $6.5 billion inannual sales.
Lan is reviewing the condition set by the TDLC, theSantiago-based carrier said in an e-mailed statement.
Under terms of the transaction announced in August lastyear, investors would receive 0.9 Lan share for each share ofTam they own. Lan would have about 70 percent of a holdingcompany called LATAM Airlines Group while Tam’s controllingshareholders would retain 80 percent of the Brazilian carrier’svoting stock to comply with a law that caps foreign capital at20 percent. Lan’s Enrique Cueto would be chief executive of thenew company while Tam’s Mauricio Rolim Amaro would be chairman.Both airlines would continue operating separately with their ownbrands.

Legal Review 

Chile’s consumer defense association Conadecus filed inJanuary a petition to the TDLC to block the deal on grounds thatit would reduce competition. Separately, Lan and Tam had reachedan out-of-court agreement on mitigation measures with Chile’sNational Economic Prosecutor to speed up approval of the deal.The TDLC agreed to review the case and put the deal on standby.
“Our lawyers are reviewing the conditions and we should bein a position to make a statement hopefully within the next 24hours,” Conadecus Chairman Hernan Calderon said today by phone.
Calderon said Sept. 16 that Conadecus could appeal afavorable ruling for the deal if it didn’t appropriately protectconsumers, according to an interview with Diario Financiero.Calderon declined to comment today on whether he planned toappeal the ruling until reviewing the TDLC’s conditions.
Brazil’s competition defense authority Cade probably willrule on the transaction by the end of October or early November,Olavo Chinaglia, the commissioner responsible for the case, toldreporters Aug. 31. Brazil’s civil aviation agency, known asAnac, approved the deal in March.

Source: Bloomberg


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