United, Continental Shares Plunge on Merger Denial

Houston-based Continental Airlines Inc. Chairman and CEO sent a letter to its 45,000 employees on Sunday, stating that the company's board will not merge with Delta Airlines at this time.

CEO Larry Kellner and President Jeff Smisek wrote that "the board very carefully considered all the risks and benefits of a merger with another airline, and determined that the risks of a merger at this time outweigh the potential rewards, as compared to Continental's prospects on a standalone basis."

Rumors of a potential merger between the airlines emerged after Atlanta-based Delta Air Lines Inc. announced two weeks ago it would merge with Minnesota-based Northwest Airlines in a $17.7 billion deal.

After confirming that no merger talks were being held between the airlines, investment firm Credit Suisse cut Continental's rating from "out perform" from "under perform."

Credit Suisse said its prior ratings were based on the notion that Continental and United Airlines, owned by UAL Corp. , would merge. After rumors were denied, Credit Suisse said that United has only one "suboptimal" choice of which airline to merge with, and that is U.S. Airways Group .

Shares of Continental fell 2 percent to $16.86 and UAL Corp. lost 5.8 percent to $14.33, while U.S. Airways gained 8.7 percent to $7.78.

Continental's rival AMR Corp., parent of American Airlines, saw its shares rise 3.2 percent to $7.67.

The airlines industry have been hard-hit with soaring fuel prices and a slowing economy, leading airlines to consider consolidation as a way to cut costs.

At the time of the Delta/Northwest announcement, Kellner and Smisek wrote to employees, "This merger will change the competitive landscape for Continental and the entire airline industry."