LAN and TAM expect to complete their historic merger by mid 2011, resulting in the creation of a new publicly traded holding company with LAN being the vehicle for the transaction.
The two Latin American airline groups entered on 13 August into a non-binding memorandum of understanding outlining their intentions to create a new parent company to be called LATAM Airlines Group. The two carriers say they will now start negotiating a binding definitive agreement, which will be subject to shareholder and regulatory approvals.
LAN CFO Alejandro de la Fuente told analysts in a 13 August conference call to discuss the deal that the two sides expect it will take two to three months to conclude the binding agreement. He says LAN and TAM estimate it will then take six to nine months to secure all the required regulatory approvals.
Based on the schedule outlined by de la Fuente, LATAM will formally take over as the new parent company for both LAN and TAM as early as April 2011 or as late as August 2011. But de la Fuente says "we expect to finish the transaction the first half of 2011".
LAN will be the vehicle for the transaction but its listing on the New York and Santiago stock exchange will change to LATAM once the transaction is completed. LATAM will also be listed in Sao Paulo.
TAM shares, meanwhile, will be delisted in both New York and Sao Paulo once the transaction is completed. LAN and TAM say TAM shareholders will receive 0.90 shares in LAN for each TAM share they hold.
de la Fuente says this 0.90 figure is not subject to further negotiation as LAN and TAM work on a final binding agreement. "This is something that is fixed and that we agreed between both companies," he explains.
de la Fuente says LAN and TAM will retain their own brand and independent operations with separate CEOs having autonomy to run each business. In addition, he says "each airline in the group will maintain current headquarters and corporate structure".
This includes passenger airlines in Brazil, Paraguay, Chile, Argentina, Peru and Ecuador. Carriers in the first two countries now fall under the TAM group while carriers in the latter four countries fall under LAN.
de la Fuente says LAN's plans to add a passenger airline affiliate in Colombia next year is unaffected by the proposed merger. He says once the new Colombian carrier, now known as AerOasis, secures approval to launch services it will be integrated into the new LATAM structure.
LAN Cargo and its affiliates will also fall under LATAM. LAN now has cargo airline affiliates in Brazil, Colombia, Mexico and the US.
de la Fuente says the structure is designed to comply with foreign ownership regulations, including Brazil's cap limiting foreign ownership in airlines to only 20%. This will be achieved by the Amaro family retaining 80% voting rights at TAM's parent company.
TAM president Libano Barroso explains that TAM and LAN will forge a single economic entity in LATAM but "the structure complies totally with existing regulations".
LAN CEO Enrique Cueto told analysts that emerging markets such as Latin America are developing fast and "now is our time to capitalise on this trend".
Mauricio Rolim Amaro, the vice-chairman of TAM and the future chairman of LATAM, added that "we believe now is the right time to bring the companies together" and the proposed transaction "is a win-win all the way around".