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LAN ans TAM airlines

LAN Airlines and TAM S.A. announce binding agreements

Jan 19, 2011

SANTIAGO, CHILE and SAO PAULO, BRAZIL – LAN Airlines S.A. and TAM S.A. today announced the signing of the binding agreements between both companies and their respective controlling shareholders, in line with the memorandum of understanding (the “MOU”) signed on August 13, 2010. These binding agreements, include an Implementation Agreement and an Exchange Offer Agreement (the “Executed Contracts”) containing the definitive terms and conditions of the proposed business combination of LAN and TAM. This transaction remains subject to approval of Agência Nacional de Aviação Civil of Brazil (“ANAC”) and other relevant government authorities.

The Executed Contracts were approved by the Boards of Directors of both LAN and TAM at meetings held on January 18, 2011 in Chile and Brazil. The Boards of Directors of LAN and TAM approved the binding documents and agreed to recommend to their respective shareholders the approval of the transaction.

Enrique Cueto, CEO of LAN Airlines said: “We are pleased to announce that LAN and TAM are taking a new and very important step towards building one of the leading airline groups in the world. Today’s announcement confirms the commitment that we share with our friends at TAM, which is a strong passion and determination to provide millions of Latin American passengers with better service, always certain of the great potential of the Latin American market.”

“As regional leaders, TAM and LAN make a natural move in the global trend of consolidation in the airline sector. We believe this is the best way to guarantee our companies’ growth, in a scenario of high competition and growing demand. We are confident that, after all the required approvals, we will be able to offer even more advantages to our costumers, employees and stockholders”, says Marco Antonio Bologna, TAM S.A.’s CEO.

Regarding the structure of the transaction, substantially all of the voting stock of TAM is expected to be acquired by a new Chilean corporation (“Holdco 1”). The share capital of Holdco 1 will be divided into two series: (i) one series of voting stock, which will have no economic rights other than nominal dividend rights, and (ii) one series of non-voting stock, which will have substantially all of the economic rights. The share capital of Holdco 1 will be distributed as follows: (x) at least 80% of the voting stock will be acquired and held indirectly by the Amaro family through a new Chilean corporation (“TEP Chile”), and no more than 20% of the voting stock will be acquired and held by LAN, and (y) 100% of the non-voting stock will be acquired and held by LAN.

The non-voting stock of TAM indirectly held by the Amaro family will be contributed by them to a new wholly-owned Chilean corporation (“Sister Holdco”). Holdco 1 will incorporate a new Chilean corporation (“Holdco 2”), that will launch a delisting exchange offer pursuant to which all the holders of TAM stock (other than the Amaro family) may tender their shares in exchange for the same number of shares of Holdco 2 (the “Exchage Offer”).

Simultaneously with the settlement of the Exchange Offer, Holdco 2 and Sister Holdco will merge into LAN, with LAN being the surviving entity. The exchange ratio in the mergers will be 0.9 shares of LAN per share of Sister Holdco and Holdco 2, whose sole assets will be the TAM shares contributed by the Amaro family and acquired in the Exchange Offer, respectively.

The commencement of the Exchange Offer will be subject to conditions customary for transactions of this nature, including (i) that the shareholders of LAN approve the mergers, (ii) that no more than 2.5% of holders of LAN stock shall have exercised their appraisal rights (derecho a retiro) under Chilean law and (iii) receipt of approvals from and/or registrations with ANAC, the Comissão de Valores Mobiliários of Brazil, the Superintendencia de Valores y Seguros of Chile, the Securities and Exchange Commission of the United States of America and the applicable antitrust authorities in the relevant countries.

The consummation of the Exchange Offer will be subject to the additional minimum conditions that the number of shares tendered and not withdrawn from, or that otherwise approve, the exchange offer are sufficient under Brazilian law to (i) permit the delisting of the TAM stock from the BM&FBovespa (“Bovespa”), and (ii) give LAN the right and ability to effect a statutory squeeze-out of all TAM stock that do not accept the Exchange Offer.

The transaction contemplates that the LAN stock will be listed in Brazil in the Bovespa as Brazilian Depositary Receipts and will continue to be listed in Chile and in the New York Stock Exchange (“NYSE”) as American Depositary Receipts. The TAM stock will cease to be listed in the Bovespa and in the NYSE as American Depositary Receipts.

LAN’s name will be changed to “LATAM Airlines Group S.A.” (“LATAM”), and the share capital of LAN will be distributed approximately as follows (assuming a 100% of the holders of TAM stock, other than the Amaro family, tender their shares into the Exchange Offer): (i) LAN controlling shareholders, 24.07%; (ii) TEP Chile, 13.67%; (iii) other existing shareholders of LAN, 46.60%; and (iv) tendering holders of TAM stock, 15.65%.

Upon consummation of the transaction, LAN, TAM and their respective subsidiaries will continue their airline operations as presently conducted. The Chairman of the Board of LATAM shall be Mauricio Rolim Amaro. Enrique Cueto shall remain as Chief Executive Officer of LATAM and Ignacio Cueto shall remain in his current capacity as President and Chief Operating Officer of LAN’s current operations. The Chairman of the Board of TAM shall continue to be Maria Claudia Oliveira Amaro, and the Chief Executive Officer shall be Marco Bologna.

Completion of this transaction is expected to take between six to nine months. The proposed combination of LAN and TAM as LATAM will produce an airline group that will be among the major 10 in the world. LATAM will provide transport services for passengers and cargo to more than 115 destinations in 23 countries, operating a fleet of more than 280 aircrafts and will have over 40,000 employees.

LAN Airlines and TAM S.A. announce binding agreements

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