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After failing to reach an agreement that would allow them to break off their $12.3 billion merger, UAL Corp., and US Airways Group Inc. have asked antitrust officials to rule on the deal. Yet, outside observers give the tie-up little chance of coming off. UAL and US Airways said in separate statements July 12 that they have asked the Department of Justice to issue a formal ruling on the merger. In principle, the move means UAL and US Airways could close the transaction in 21 days, unless antitrust officials file suit to block the merger. The deadline for DOJ to act is Aug. 1. The request for a regulatory verdict came as a surprise in that UAL, the Chicago-based parent of United Airlines, has of late shown little interest in completing the deal. In fact, UAL in its statement sounded reluctant to file for a ruling, saying it is moving ahead with the process at the request of US Airways. “UAL Corp. recently proposed to US Airways that the merger agreement be mutually terminated,” UAL said in its statement. “US Airways has rejected this proposal and would like a formal response from the DOJ. In keeping with its obligations under the merger agreement, UAL Corp. will continue to pursue the transaction during this period.” Last week, UAL and US Airways announced they were in talks to dissolve their merger ahead of an Aug. 1 termination date. The companies acknowledged July 12 that those talks have failed. But industry watchers said the move does not necessarily indicate the companies have changed their minds about the deal. “I don’t put a lot of credence in the announcement,” said Ray Neidl, an airline analyst at ABN Amro. “I think they’re just doing it to cover the legal bases.” On July 11, Arlington, Va.-based US Airways asked the DOJ to rule on the merger after resolving not to let UAL out of the deal. US Airways asked UAL to press regulators as well, and UAL acknowledged it is bound by its merger agreement to move ahead with the combination. Under the language of the merger, UAL and US Airways must make “all reasonable efforts” to solicit government approval for the deal, which was first announced 14 months ago. That includes making “all necessary registrations, declarations and filings” with governmental entities, according to the agreement. That agreement will expire Aug. 1. After then, UAL will be free to pay a $50 million break-up fee and walk away. But if UAL gives up before then, US Airways can hold it to the agreement even after the walkaway date. UAL said July 12 it decided to abandon the deal because conversations with the Justice Department have led it to believe the deal stands little chance of clearance. But UAL has another compelling reason to drop the merger. The company agreed to pay $4.3 billion in cash, or $60 a share, for US Airways. When the deal was announced, the price represented a 130 percent premium for US Airways. Since then, however, US Airways’ shares have fallen by one-third, fueling criticism that UAL overpaid. Nevertheless, UAL under the agreement cannot use its merger partner’s sinking stock as a pretext to back out. That means UAL may have to go through the motions of trying to win approval to avoid being sued by US Airways. [UAL] “is assuming it would not be able to get Justice’s approval,” said Robert Lawless, a law professor at the University of Missouri-Columbia. “Not being able to get the government to approve a deal is a justifiable legal defense.” It is less clear why US Airways would want to receive a ruling. The company has told its workers for the past week that it considered the deal dead, and it even floated the idea of selling itself to other carriers in pieces. In its statement July 12, US Airways admitted that “there is no assurance … that the transaction can be consummated.” One possible explanation is that US Airways fears some of its shareholders will file suit against the carrier if it does not try to force UAL to complete the deal. According to one Wall Street lawyer, however, US Airways is probably safe from this sort of litigation. “The board of US Airways would be totally protected if it did its work and decided it was not worth it to pursue the deal,” the lawyer said. “A court probably wouldn’t overrule that judgment.” Copyright (c)2001 TDD, LLC. All rights reserved.

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