Last week, United Airlines agreed to acquire US Airways for $4.3 billion in cash (plus the assumption of $7.3 billion in debt and leases). How does such a huge deal work? Where does United get that kind of money, and whom does it give it to?
United has $1.3 billion in cash on hand, but it will need to borrow the remaining $3 billion. The loan will be syndicated, which means a single firm will arrange it and then sell participation in it to other firms. All this money will change hands via electronic transfer.
If the deal is approved by regulators, United will send each US Airways stockholder a check for $60 per share. This is a 130 percent premium over the closing price the day before the deal was announced (just over $26 per share).
Acquisitions are sometimes completed with stock swaps instead of cash transactions. In a stock swap, the shareholders in the soon-to-be absorbed company receive shares in the acquiring company. United paid cash for US Airways for internal political reasons. United employees own a majority of the company’s shares, and a stock swap would have reduced their control by diluting the value of their shares.
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