TAM S.A merge with LAN Airlines

Chile based LAN Airlines S.A. (LFL) has combined with Brazil based TAM S.A. (TAM). The airline holding company is called LATAM Airlines Group and trades in the U.S. under the LFL symbol.Prior to the merger, LAN had a market cap of $9 billion and TAM was worth $4 billion.

The total $13 billion market cap makes LATAM the second largest airline company in the world after Taiwan based Air China.

To complete the deal, TAM shareholders swapped their shares for LAN/LATAM shares.

The stock will be listed on the Chile, Brazil and U.S. stock exchanges.The combined LATAM becomes the dominant airline service provider in South America, including the fast growing Brazil market. Unlike U.S. airlines, these two company has been, by and large profitable, and actually pay investors attractive dividends.

For the long term investor, this is a very attractive investment in the airline industry. In my view, the majority of airline stocks are some of the worst investments around. LATAM is a good choice for an investor who wants airline exposure in a portfolio and actually expect the stock to increase in value.

One negative for the company is the slowing growth of the Brazilian economy. Air travel has grown rapidly in Brazil in recent years and that growth is slowing. LATAM must manage the amount of service they offer into the Brazilian markets to avoid having too much capacity in the country.As founding partner of Turci Advogados, Flávia Turci led the firm throughout the transaction. Associates Ana Matsuda, Carlos Fujita and Leonardo Dias were also involved. They represented the controlling shareholders of TAM, with whom they have a long-standing working relationship.

Turci commented, “Some legal challenges faced were: to reach a structure that complied fully with the ownership restrictions applicable to airlines in Brazil; to conduct simultaneous antitrust procedures in multiple countries; to consolidate markets through an exchange offer. All challenges were faced having in mind that legal solutions had always to preserve commercial goals and efficiency”.