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US Airways and American Airlines Merge; US Airways Undervalued

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US Airways (NYSE: LCC) and American Airlines (OTC:AAMRQ) have agreed to merge in an all stock deal worth approximately $11 million. Under the terms of the deal, American Airlines creditors will own 72% of the new company and US Airways shareholders will own the remaining 28%.


Surprisingly, US Airways is trading down on the day by over 5% at a current price of $13.80. Based on the 162 million outstanding shares, this gives US Airways a market cap of roughly $2.24 billion.

This is where things get interesting. US Airways will own 28% of the new company which will be worth $11 billion. This implies that US Airways should be worth approximately $3.08 billion, or $19 per share.

I believe the market doesn’t understand what is actually happening here in this deal and this may be a great opportunity to get long and make a few bucks on an up swing.

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