|By Marketwire .||
|January 18, 2013 02:11 PM EST||
NEW YORK, NY -- (Marketwire) -- 01/18/13 -- Shares of AMR Corp (PINKSHEETS: AAMRQ) have skyrocketed from $.36 per share to $1.60 (450%) per share since a proposed merger with US Airways (NYSE: LCC) was publicly announced in November 2012. For the same time period, United Airways stock has risen from about $12.00 per share to $15.00 (25%) per share.
Evolution of the Merger Process
In November 2011 AMR Corp filed for chapter 11 bankruptcy protection. Five months later, in April of 2012, US Airways made its first attempt at a merger, information that was not publicly released and largely ignored by the AMR Corp. The terms of a merger at that date would have given US Airways shareholders an interest in the combined companies of 50.1%, leaving 49.9% to satisfy the creditors of AMR Corp. In November 2012 US Airways came back to the negotiation with a merger proposal that would give AMR Corp creditors 70% of the newly formed enterprise and 30% to the shareholders of US Airways. This new sweetened proposal became public knowledge. The first reaction of AMR Corp CEO Tom Horton was to state the 70% stake was inadequate to satisfy the creditors of his company, but early this month he sent a memo to AMR Corp employees that the decision about a merger with US Airways was only weeks away.
Will Shareholders of AMR Corp Benefit From the Proposed Merger?
Historically, holders of common shares in a bankrupt company do not fare well. They are last in line behind trade creditors, preferred shareholders, bondholders, lenders, municipalities, taxing authorities and, of course, attorneys. The difference in the AMR Corp/US Airway proposed merger, and historical comparisons, is both companies are enjoying the prosperity of a great air travel marketplace. AMR Corp attorney Harvey Miller stated in a letter two weeks ago ultimately filed with the SEC, "Depending upon the ultimate strategic alternative adopted and pursued, there exists a reasonable possibility that there may be value for AMR equity holders." A clear indicator of the prospect for shareholder benefit would be the formation of an equity committee within the bankruptcy proceedings. With that being said, investors should know what is required to see any upside to AMR Corp shares. There are 335 million shares outstanding with a current value of approximately $1.50 per share meaning better than $500 million needs to be culled from the AMR Corp bankruptcy estate to give shareholders the full current value. When AMR Corp filed bankruptcy, the shortfall between its assets and liabilities was $4.9 billion, with $29 billion in liabilities, and its share price under a dollar per share. Bankruptcy is a snapshot in time. Creditors will receive a pro rata share of what they were owed in November of 2011 based upon the funds available to pay them. If any recovery were set aside for shareholders would it be based upon today's share value? Ask yourself what the benefit is to a newly formed, merged company that would issue new stock, in paying money to AMR Corp shareholders. Most likely any payout to shareholders will be nominal. (Get Full Report) http://www.firstpennypicks.com/get-your-free-research-report/
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