LAN and TAM Create LATAM Airlines Group

LAN Airlines (which has been renamed LATAM Airlines Group) and TAM have successfully completed the exchange offer and mergers through which they have combined their businesses and created the LATAM Airlines Group.

LATAM Airlines Group will offer passengers more flights to more destinations than any other affiliated group of airlines in South America, initially reaching about 150 destinations in 22 countries and transporting cargo to 169 destinations in 27 countries.

The transaction was carried out through an exchange offer in which TAM's shareholders could elect to exchange their TAM shares for LAN shares at a ratio of 0.9 LAN shares for each TAM share. The offered LAN shares will be delivered in the form of BDRs (Brazilian Depositary Receipts) in Brazil and ADRs (American Depositary Receipts) in the United States. The exchange offer, which was materialized with the auction on 22 June 2012, was subject to the condition that more than 2/3 of the TAM shares that participate in the offer agree with the deregistration of TAM as a public company in Brazil. This delisting condition was satisfied when 99.9% of the participant shares agreed with TAM’s deregistration. The tendered shares together with the TAM shares committed by the TAM Controlling Shareholders represented 95.9% of the total outstanding shares of TAM.

"The creation of this group of airlines is an opportunity to take South America to the world and to allow us to position ourselves to operate in an increasingly competitive environment due to the continuing consolidation of the global airline industry," said Enrique Cueto, Executive Vice President-CEO of LATAM Airlines Group.

Among the benefits that passengers of both LAN and TAM will be able to access over time are increased connectivity, improved routes and frequencies and reduced connection times. Additionally, starting 27 June 2012 the members of frequent flyer programs LANPASS and TAM Fidelidade will be able to earn and redeem kilometers/points over the complete flight networks of LAN and TAM.

In addition, members of the senior frequent flyer levels of both airlines (Comodoro / Black and Premium Silver / Red) will be able to add to their existing benefits preferential access to services for themselves and a companion, including access to VIP lounges of both airlines, preferential check-in and boarding and priority baggage.

LATAM Structure

As for the corporate structure, Mauricio Rolim Amaro, currently Vice Chairman of TAM, will become Chairman of LATAM Airlines Group S.A. Maria Claudia Amaro will remain as chairwoman of the Board of TAM S.A. and will also become a member of the Board of Directors of LATAM Airlines Group S.A. Enrique Cueto, currently Executive Vice President-CEO of LAN Airlines S.A., will become Executive Vice President-CEO of LATAM Airlines Group S.A. Ignacio Cueto, currently President and Chief Operating Officer of LAN Airlines S.A., will become CEO of LAN Airlines. Finally, Marco Antonio Bologna will remain as CEO of TAM S.A. and TAM Linhas Aéreas S.A.

Each airline in the LATAM Airlines Group will maintain its present headquarters: LAN in Santiago and TAM in Sao Paulo. Both LAN and TAM will also continue to operate under their existing brands in the same way as they have done until now.

Cargo

LAN Cargo and its affiliates - ABSA in Brazil, MAS Air in Mexico and Línea Aérea Carguera in Colombia - are the largest group of air cargo operators in Latin America. By adding the leadership of TAM Cargo in the Brazilian domestic market, LATAM Airlines Group will offer services to 169 destinations in 27 countries around the world. 

Synergies

Both companies project pre-tax synergies of approximately US$170 million to US$200 million for the first 12 months after combination, gradually increasing to annual pre-tax synergies of between US$600 million and US$700 million, beginning four years after the completion of the combination.

LATAM Airlines Group also estimates one-time costs associated with the closing of the transaction and the realization of synergies of approximately US$170 million to US$200 million, most of which are expected to be incurred in the first 12 months after the completion of the combination.

Approximately 60% of the total estimated potential synergies will derive from revenue increases in the passenger and cargo businesses and, therefore, the cost savings are expected to generate the remaining 40%.

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