United, Continental merger details emerge

United Airlines and Continental Airlines are studying a stock-for-stock merger with no premium, two people with knowledge of the talks said, in a deal that would create the world's largest carrier.

Continental CEO Jeff Smisek, 55, would run the combined company as CEO while United's Glenn Tilton, 62, would be chairman, said the people, who asked not to be identified because details are private. The terms aren't set, and a deal may be more than a week away, the people said.

Putting the airlines together would form a carrier valued at more than $6 billion. The people described the discussions after US Airways said that it had ended separate merger talks with United, leaving Continental and United as the focus of industry consolidation.

"This is the right merger at the right time," said Hunter Keay, an analyst at Stifel Nicolaus & Co. in Baltimore, who recommends buying UAL and Continental. "I don't see a lot of impediments. Corporate travel is improving, there's no revenue crisis and oil isn't $145 a barrel" as it was in 2008 when their negotiations on a tie-up fell through.

Directors and executives for the new airline besides Tilton and Smisek may be drawn from both United and Continental, the people said.

Julie King, a spokeswoman for Continental, didn't return calls seeking comment. Jean Medina, a spokeswoman for Chicago-based United, declined to comment on whether the airline is in talks with Continental.

United and Continental are the third- and fourth-largest airlines by traffic, trailing Delta Air Lines and American Airlines. A merged carrier would be bigger than Delta, which took the top spot by buying Northwest Airlines in 2008. Broader route networks help airlines funnel in more passengers.

The two airlines' discussions began this month, following talks that started in February between United and US Airways, people have said. US Airways pulled out after concluding that United was more interested in pursuing Continental, people familiar with those talks said .

The 2008 negotiations between United and Continental collapsed when Continental decided to stay independent.

Tilton was CEO at the time, after joining United in 2002, while Continental was led by Larry Kellner. Smisek was president when those conversations were held, and took the top spot at Continental in January when Kellner retired.

Together, United and Continental would leapfrog Delta for the top spot across both the Atlantic and Pacific among U.S. airlines, with 40 percent and 53 percent of traffic, based on data compiled by Bloomberg. The merged carrier would be No. 2 in Latin America behind AMR Corp.' s American.

Benefits from a "global network should outweigh any of the near-term costs" of integrating, said Jeff Straebler, a fixed- income strategist at RBS Securities Inc. in Stamford, Conn. "They would make a much stronger carrier."