The all-cash deal offers Virgin stockholders $57.00 per share, an 85.8% premium compared to the stock’s closing price on March 22, the day before reports emerged that the company was looking for buyers.
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Alaska Airlines has agreed to acquire Virgin America in a deal worth approximately US$4 billion.
News that Alaska Airlines will pay up to $4 billion to scoop up Virgin America is getting mixed reviews among travelers-and even from Virgin Group founder Richard Branson-which isn’t surprising given that this isn’t your average big airline merger. Virgin, which turned profitable – barely – in 2013, earned a record $340.5 million a year ago.
The addition of San Francisco-based Virgin America’s main routes connecting the USA west and east coasts will strengthen Alaska’s coverage, which has built up from a base of connecting the huge, remote northwest U.S. state to the lower west coast.
Alaska announced that its deal for Virgin would add 200 departures daily to its almost 1,000 it has now. The airline now is the sixth-largest U.S.-based carrier by traffic and is serving 90 destinations in the United States, Canada as well as Mexico.
As a result, Virgin America’s most valuable assets are actually its terminal space at San Francisco International Airport and Los Angeles International Airport along with landing rights at Love Field in Dallas, LaGuardia in NY and Reagan National in DC, Bhaskara said.
The combined business, which will be based in Seattle, will have about 280 aircraft including regional planes. Alaska Air now flies Boeing Co (BA.N) 737s. Virgin only uses Airbus jets. That relationship also enables members of both carriers to have the equal status between the two airline companies.
Shares of Virgin America Inc.
“It’s inevitable that we would see some form of combination (among smaller airlines) as they strive to find a way to compete with the larger carriers”, said travel industry analyst Henry Harteveldt.
Mega-mergers in the past decade have reduced the USA industry to four top players that control more than 80 per cent of the market.
Alaska Air’s Tilden hinted that the Virgin America brand could survive a merger, though he added the “Alaska Air brand will definitely stay”. And regarding the bet shares and income of the company is somewhat expected to reach up to $225 million annually but once the company completely merged; the integrated company can expect for net income of $300-$350 million per annum. 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.
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On news of the deal, Virgin’s stock soared more than 41% to $55.03 in trading Monday.
