Alaska Air Group has agreed to buy Virgin America in a $4bn (£2.8bn) deal to create the fifth largest United States airline.
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Alaska Air will pay $57 per share in cash for Virgin America, which is roughly 86% higher than Virgin’s stock price in March when the airline was considering a sale. His Virgin America airline company was purchased by Alaska Air Group (owners of Alaska Airlines) in a $2.6 billion dollar transaction. With Virgin’s debt added in, the total value of the deal will jump to about $4 billion. That’s an 89 percent premium to Virgin’s average price in the days before news broke last month of a possible deal -and well above any price Virgin has ever reached in its less than two-year tenure as a public company. Virgin is being forced to restart that growth this year as it takes delivery of new jets ordered years ago that can’t easily be cancelled.
As a result, the combined company would create a major force in the US West Coast region, with hubs in San Francisco, Los Angeles, Seattle and Portland, and a combined fleet of approximately 280 aircraft providing 1,200 daily departures.
So what exactly did Alaska Airlines buy?
Bank of America Merrill Lynch (BAC.N), UBS Investment Bank (UBSG.S) and Cowen & Co (COWN.O) were financial advisers to Alaska Air, while Evercore Group LLC advised Virgin America. But it’s acquiring an airline whose net income is forecast to drop this year and which just reported two straight quarters of declining passenger revenue per each seat flown a mile.
The combined business will be based in Seattle with Tilden as its CEO.
JetBlue is the number one airline serving Boston and has added routes to the Caribbean and South America to its route system, and it wanted to expand further on the West Coast.
The offer was set to beat a rival bid by JetBlue Airways Corp JBLU.O , the people said, according to the Journal.
It is the fourth consecutive year that Virgin America earned the top spot in the AQR, an annual joint study by professors at Wichita State University and Embry-Riddle Aeronautical University that is in its 26th year.
Brad Tilden, the CEO of Alaska Air Group said the scale of the merger irrelevant.
The stock is up 41.59% or $16.18 after the news, hitting $55.08 per share.
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As the consolidation trend continues in the airline industry, Alaska’s parent company, Alaska Air Group, is aiming to increase its footprint at airports across the country. However, regulators still have to look into the deal and then give their approval, while Virgin America’s shareholders also have to give their blessing to the deal.
