The deal will give Alaska Air opportunities in important East Coast business markets by increasing the airlines access to slot-controlled airports, such as Ronald Reagan Washington National Airport and the two primary New York City-area airports, John F. Kennedy International Airport and LaGuardia Airport. As part of the deal, Alaska agreed to pay $57 in cash for each share of Virgin stock, a considerable premium over Virgin’s Friday closing price of $38.90 per share. Alaska Airlines was reported as another bidder, but was not really considered the frontrunner.
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There is no guarantee Alaska Air will clinch the deal, but if it does, an announcement could come Monday, the Journal quoted its sources as saying. The biggest question that many people have is whether or not Virgin’s trademark hipness will find its way onto Alaska Airlines planes.
Branson adds that because he is not a USA citizen, the “Department of Transportation stipulated I take some of my shares in Virgin America as non-voting shares, reducing my influence over any takeover”.
“Consolidation is a trend that sadly can not be stopped”. Beyond that, however, it was not immediately clear whether the Virgin America brand would disappear altogether.
Overall airline performance improved slightly in 2015. 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.
FILE – Virgin Group Founder Richard Branson greets a reporter as he sits in a Virgin America aircraft replica at an opening for a new cabin trainer facility at Virgin America corporate headquarters in Burlingame, California, Oct. 18, 2011. Looking at the deal from a valuation perspective, the bid ranks on the high end for airline transactions as a multiple of Ebitda.
From a customer point of view, the legroom in the main cabin is the same on both airlines. The airline will host more than 175,000 daily fliers in California airports, Alaska Air officials said. It would also benefit from Virgin America’s corporate contracts and cult-like status among travelers who work for technology companies. Virgin called in a corporate team from longtime legal adviser Latham & Watkins to assist in the negotiation process, while Alaska Air was supported by partners from O’Melveny & Myers. It went public in November 2014 with an initial stock offering that jumped 30 percent on its first day of trading.
Each of the airlines already has very loyal passengers. Alaska Air expects to achieve annual net synergies of $225 million once the two companies are fully integrated, while one-time integration costs are expected to be in a range of $300 million to $350 million.
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Alaska shares fell $3.09, or 3.8 percent, to $78.92, while Virgin shares soared $16.21, or 41.7 percent, to $55.11.
