United, Continental boards OK merger: source

CONTINENTAL (CON.XE)and UAL Corp's United have ironed out the last remaining wrinkle in their merger talks, paving the way for a deal that would create the world's largest carrier, sources familiar with the situation previously told Reuters.

The airlines have agreed to an exchange ratio of 1.05 UAL shares for each Continental share in all-stock deal yet to be approved by the companies' boards, the sources said.

Based on United's stock price of $21.83 on Friday afternoon, and Continental's 139.6 million outstanding shares as of April 21, United would pay $3.2 billion for Continental.

Based on current shares outstanding, a combined company would have 314.5 million shares, and UAL shareholders would own roughly 53 percent of the new company.

Under the terms being discussed for the all-stock merger, UAL Chief Executive Glenn Tilton would become non-executive chairman of the combined carrier while Continental CEO Jeff Smisek would become chief executive.

The combined carrier would operate under the United brand name and would be based in Chicago, sources had previously told Reuters.

(Reporting by Jui Chakravorty in New York, writing by Jessica Hall; Editing by Bernard Orr)