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JPMorgan thinks merger news already baked into AMR's OTC price

  • For those dabbling with AMR (AAMRQ) in OTC trading, JPMorgan advises that most of the good news on a settlement between the DOJ and American has already been factored into the company's share price.
  • The investment firm downgrades the carrier to Neutral from Overweight.
Comments (9)
  • Mongoose7916
    , contributor
    Comments (229) | Send Message
     
    Not true JPMorgan. Tsk! Tsk! If you want to argue that people are getting ahead of themselves because the merger might not go through I'm not going to argue but to state most of the good news is baked in is a flat out lie. AAMRQ easily reaches 12-14 on any merger settlement.
    6 Nov 2013, 05:14 PM Reply Like
  • aaretired
    , contributor
    Comments (22) | Send Message
     
    I think you are getting ahead of yourself, how do you get 12-14 on a settlement?
    6 Nov 2013, 09:41 PM Reply Like
  • Mongoose7916
    , contributor
    Comments (229) | Send Message
     
    I am not going to go through this point by point but here is some analysis that I mostly agree with

     

    When US Airways and American Airlines announced their merger on Feb. 14, officials put the value of the merger at $11 billion.
    That was based on the price of US Airways common stock as of Feb. 13, the diluted number of shares and the fact that US Airways shareholders would own 28 percent of the new American Airlines Group after the merger.
    So the math was like this:
    $14.66 a share X 207.9 million diluted shares is $3.05 billion.
    The $3.05 billion is 28 percent of $10.89 billion. That’s how we got to $11 billion.
    However, the official creditors committee noted in a filing Thursday in U.S. Bankruptcy Court that that was then and this is now.
    “The estimated value of the merger appears to have increased since February 13, 2013,” the committee stated. “Based on the trading price of US Airways’ securities on July 29, 2013, the Plan voting deadline, the value of the Merger appears to have increased from $11 billion to approximately $14.3 billion.”
    Actually, the deal’s value peaked at $14.4 billion when US Airways stock closed at $19.38 on Aug. 1. On the other end, its bottom came on Feb. 25 when the $13.02 close indicated a deal value of $9.7 billion.
    As of Thursday’s $18.98 close of US Airways shares, the deal is worth $14.1 billion using the above formula.
    The primary beneficiary of the rising stock price would be the holders of AMR stock. They were promised at least 3.5 percent of the stock in the new post-merger AAG, but could get more as the value of the deal increased.
    That’s because creditors will get paid what they’re owed, including accumulated interest, rent or whatever, but no more than that. The creditors getting stock will be repaid based on the value of the stock at the time it is put in the creditors’ hands. A higher stock price means fewer shares for them, more for owners of the old AMR shares.
    US Airways shareholders get 28 percent of the AAG stock, regardless of the price of US Airways shares pre-merger
    7 Nov 2013, 01:05 PM Reply Like
  • goldbaum
    , contributor
    Comments (134) | Send Message
     
    Good question. Aaretired. Let me give you some facts that may give you some insight regarding Amr
    Market cap at current stock price:usd 3 billion.
    PE ratio: 8x
    Expenses :Significantly lower than 2012.
    AMR is already profitable,last quarter being the most profitable in a long while,if not ever.
    Occupancy rate at 80pct!!!!
    Having stated this,if you compare Amr stats with other airlines like
    Delta,United, Latam or Copa (going from big to smaller) Amr is a
    steal ,even at current prices.In fact,if results continue the way they
    are and the tendency shows it,I believe the share price of Usd 12-14 within the next 12 months would be rather conservative
    WITHOUT. the merger!!!
    Hope this clarifies.
    7 Nov 2013, 07:42 AM Reply Like
  • Mongoose7916
    , contributor
    Comments (229) | Send Message
     
    Goldbaum our best bet for stock appreciation is still the merger, although it appears that AMR will be worth something if the merger doesn't go through it will not be even close to as valuable if the merger goes through. AMR reported its best quarter recently but this was only because unions and labor have backed off on compensation until the merger goes through. If the merger is blocked and AMR continues to post record earnings you can bet their will be re-negotiations. So while the worst case scenario is no longer 0 if the merger fails this would not be a strong buy either.
    7 Nov 2013, 01:10 PM Reply Like
  • frostytexan
    , contributor
    Comments (18) | Send Message
     
    If you look and the combined earnings of US and AMR and put a P/E near a normal industry number of say 10 (Delta is 11) then back out the creditor and union payouts, i get a share price of about $25. Lots of unknowns but still plenty of upside. Still potential for upside on industry improvement and fuel costs. Of course i like my basis at 3.92 much better than $9.
    8 Nov 2013, 02:24 AM Reply Like
  • goldbaum
    , contributor
    Comments (134) | Send Message
     
    Mongoose, I couldnt agree more with you,a merger would be the best deal for everibody including US Airways stockholders.
    My comment came from JP Morgans comment stating the current
    AMR stock price has the merger already baked in.That is simply
    misleading to their own clients.I strongly believe AMR is still very
    cheap given the companys strong business going. forward,lower
    expenses and renegociated debt at much better terms.
    AMR is a strong buy at current prices and once the merger is perfected,the stock will easily fly over USD12-14 per share now
    that the deal would be worth USD14 biillion.Do the math.
    8 Nov 2013, 08:58 AM Reply Like
  • jet65man
    , contributor
    Comment (1) | Send Message
     
    does anyone know what the aamrq stock holders will receive when the stock is converted to new America stock , will it be a reverse split or what
    8 Nov 2013, 12:16 PM Reply Like
  • jennyparks
    , contributor
    Comment (1) | Send Message
     
    So if I have 2000 share of AAMRQ, how many (approx) will I have of AAL when it's all said and done?
    10 Dec 2013, 05:59 PM Reply Like
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