Investing.com — Shares of Azul (NYSE:AZUL) climbed 3% in US premarket trading following the announcement of significant progress towards a potential merger with GOL.
On Wednesday evening, Azul revealed details about a non-binding memorandum of understanding (MOU) with Abra, the holding company behind GOL, indicating that key terms for the potential combination have been aligned, except for the share exchange ratio.
The companies have reached an agreement on major aspects of the proposed merged entity, initiating the anti-trust review process with a pre-filing with CADE, Brazil’s anti-trust authority. Analysts view the merger favorably, citing the swift realization of synergies to fund the deal.
The governance and operational structure has been largely settled, with Azul and GOL set to maintain separate brands and Air Operator Certificates (AOCs), while combining other business areas like loyalty programs.
The merger proposal was pre-filed with CADE, starting a review process that typically lasts around 250 days. Given the limited overlap between Azul and GOL’s flight routes and the potential for network and fleet complementarity, there is a strong chance of regulatory approval, although concessions are expected.
Raymond (NS:) James analyst Savanthi Syth commented on the merger’s potential, saying, “We note that when excluding Viracopus/VCP as a competing Sao Paulo airport… Azul overlaps with 51% of GOL’s seats while GOL overlaps with 37% of Azul’s seats. Given limited overlap, potential service expansion from the complementary networks and fleets, and challenging financial situation of Brazilian airlines… we believe there is a higher likelihood of the merger being approved, albeit with likely concessions.”
Syth also highlighted the anticipated synergies from the merger: “Notably, with synergies not contingent on combining AOCs, Azul believes ~65%/>75% can be unlocked in the first/second year following the merger. While there are gaps between Azul’s and GOL’s product offerings, the disparity has narrowed over the years with both airlines offering extra legroom seats, free snacks, and Wi-Fi. Moreover, while the plan to continue under separate AOCs adds complexity, we note that Azul’s business model is already complex.”
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