Southwest Airlines/AirTran Holdings

On September 27, 2010, Southwest Airlines (NYSE: LUV) and AirTran Holdings, Inc. (NYSE: AAI) announced an agreement whereby Southwest would acquire AirTran for a consideration of $3.42 billion aggregate, or $1.37 billion excluding debt and capitalized aircraft operating leases.

Under the transaction terms, shareholders of AirTran Holdings, Inc., will receive a combination of Southwest common stock and cash valued between $7.25 and $7.75, depending upon the average trading price of Southwest stock for a 20 trading day period to and including three trading days prior to the closing of the merger. At least $3.75 of the merger consideration will be in cash. The stock portion of the consideration will be 0.321 shares of Southwest common stock for each share of AirTran common stock, unless the trading price of Southwest common stock would cause the overall merger consideration to exceed $7.75 per share (in which case the number of Southwest shares will be decreased so that the consideration equals $7.75 per AirTran share) or would cause the overall merger consideration to be less than $7.25 per share (in which case additional cash, Southwest shares or a combination of the two will be added so that the consideration equals $7.25 per share).

The transaction is expected to close in H111.

Morgan Stanley acted as lead financial advisor to AirTran Holdings, Inc., with both Sullivan & Cromwell, LLP, and Smith, Gambrell & Russell, LLP, acting jointly as legal advisors.

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