UAL, Continental reach stock deal, pave way for merger

UAL Corp.'s United Airlines and Continental Airlines Inc. tentatively agreed on an exchange ratio in their all-stock merger of 1.05 shares of UAL for each Continental share, a person with knowledge of the matter said.

United Chief Executive Officer Glenn Tilton and CEO Jeff Smisek of Houston-based Continental have briefed their boards on the terms, said the person, who asked not to be identified because details aren't public. The CEOs reached their accord at a meeting on April 27, the person said.

A merger may be announced as soon as May 3, people familiar with the situation have said. At yesterday's closing prices, UAL and Continental were valued at $3.6 billion and $3.17 billion, according to data compiled by Bloomberg. Each Continental share was valued at 1.06 UAL shares as of yesterday.

"United shareholders may feel it's undervalued," said Vicki Bryan, a debt analyst at New York-based Gimme Credit LCC. "The board is going to have to justify that."

The new company may deliver a combination of more than $2 billion in savings and added revenue, Bryan said today in an interview. The merger would produce the world's largest carrier based on passenger traffic, surpassing Delta Air Lines Inc.

Directors at UAL have scheduled a meeting for today, people have said. Jean Medina, a spokeswoman for Chicago-based United, declined to comment. Continental's David Messing didn't immediately return a message. CNBC reported the ratio earlier today.

UAL gained 83 cents, or 3.9 percent, to $22.30 at 11:40 a.m. in New York in Nasdaq Stock Market trading, while Continental rose 47 cents, or 2.1 percent, to $23.17 on the New York Stock Exchange.

UAL and Continental are the third- and fourth-largest U.S. airlines by market value and passenger traffic, based on data compiled by Bloomberg.