Chile's LAN Airlines completed a takeover of Brazilian rival TAM, creating the world's No. 2 airline by market value in a deal that might yield up to $700 million in cost savings within four years.
LAN, controlled by Chile's Cueto family, will delist TAM shares in Brazil after 95.9 percent of the latter's shareholders tendered their stock in a swap, according to a statement. A minimum two-thirds of all TAM shareholders was required to approve the transaction.
The combined company, which will be named LATAM Airlines Group and be based in Santiago, reflects the increased trade and economic integration in Latin America, where buoyant job and household income are fueling regional demand for goods and services.
LAN took control of TAM through an all-stock transaction worth an estimated $2.7 billion.
"The creation of this group gives us the opportunity to ... position ourselves in a fierce competitive environment where global consolidation is taking hold continuously," said Enrique Cueto, who will become chief executive of LATAM Airlines, in a combined statement.
The creation of LATAM Airlines comes amid growing consolidation among airlines in Brazil as carriers struggle with expensive labor costs, an unwieldy tax burden and overcrowded airports.
Industry consolidation and the reduced capacity by TAM archrival Gol Linhas A'reas should help improve profitability for LATAM, which will count on scale gains from the merger.
Rapid growth in Brazil, by far the largest airline market in Latin America, drove ticket prices down, pressuring profits at TAM, Gol and other carriers in spite of soaring demand for air travel.
Synergies
The completion of the tie-up will allow LATAM Airlines to generate additional revenues and cost savings between $170 million and $200 million in the first year of operations.
LATAM Airlines will fly to as many as 150 different destinations in 22 different countries, stretching from Frankfurt to Sydney.
LAN's and TAM's revenues exceeded $13.3 billion last year, and their combined market value is second only to Air China among the world's airlines. (Reuters)
