Holding onto shares of AMR Corp. could pay off handsomely for investors.
The value of the stock, which traded for less than a quarter in the low days of the airline’s bankruptcy, is now estimated to reach as much as $28 a share when American Airlines distributes the final shares of its new “AAL” stock to AMR shareholders Tuesday.
Even though the merger of American Airlines and US Airways closed in December, bringing the former AMR Corp. out of bankruptcy, shareholders of American’s old parent company had to wait 120 days before they could realize the full value of their shares under a complicated equity distribution formula approved by the bankruptcy court.
AMR shareholders were only guaranteed to own 3.5 percent of the newly merged airline and initially received just 0.067 shares of AAL for each share owned. Shareholders were confused on how their shares were worth $11.39 the day before the merger closed, but only worth $1.60 once the two airlines combined.
But the equity distribution formula included additional shares for creditors, labor unions and old AMR shareholders at 30, 60, 90 and then 120 days after the merger, based on the current value of the stock. Since AAL shares have continued to rise in price, more shares were distributed, and to date, AMR shareholders have received 0.54 shares of AAL stock for each share of AMR stock they owned.
During bankruptcy, American’s old stock dropped as low as 26 cents a share after the company filed for bankruptcy in November 2011. By the time the merger closed, in December 2013, the stock price had reached as high $13.50.
Shares of the combined American Airlines and US Airways are up more than 50 percent since the two carriers closed the merger. American’s stock closed down 37 cents Thursday at $37.24 a share.
Wednesday, JPMorgan Chase analyst Jamie Baker estimated the final value of old AMR shares, last traded on Dec. 6 at $11.39 a share, could be $28.19 a share once the final stock distribution occurs next week.
Wall Street analysts expect American’s current stock price to drop in the short term, as creditors and labor unions may sell their shares to lock in profits.
“Given no change to our unrelenting bullishness as to the post-takeover earnings prospects of AAL, we would recommend investors exploit any unexpected pull-back related to the Day 120 equity conversion,” Baker told investors. But analysts say the long-term prospects are bright for the stock and the company.
Distributed by MCT Information Services