Alaska Air Group (NYSE:ALK), the parent company of Alaska Airlines, agreed to acquire Virgin America (NASDAQ:VA) for $57 per share or $2.6 billion in total equity value.
The total value of the deal was approximately $4 billion including Virgin America’s existing debt and capitalized aircraft leases.
The stock price of Virgin America surged 42% to $55.26 per share around 11:47 in the morning in New York on Monday. The stock value of Alaska Air dropped 5.2% to $77.77 per share.
Merger creates the 5th largest airline in the U.S.
Alaska Air’s acquisition of Virgin America will create the fifth largest airline in the United States and a premier carrier in the West Coast.
During a conference call, Alaska Air CEO Brad Tilden said, “We felt it was perhaps a one-time opportunity to get a stronger foothold in California, something we felt was going to benefit us immediately, but also in the years and decades ahead.”
Tilden also considered the presence of Virgin America in New York and Washington, both flight-constrained airports as a “scarce real estate.”
The acquisition will expand the existing footprint of Alaska Airlines in California. It will also expand its platform for growth and strengthen its competitiveness against the four largest airlines in the United States.
The combined company is expected to achieve $225 million in total annual net synergies at full integration, and its estimated annual revenue is more than $7 billion.
“Together we will continue to deliver what customers tell us they want: low fares, unmatched reliability, and outstanding customer service,” said Tilden in a statement. He added they would offer customers with more attractive flight options for nonstop travel given its expanded network and strong presence in California.
Alaska Air expected the deal to be accretive to adjusted earnings per share in the first full year, excluding integration costs.
Alaska Air beat JetBlue in a hard-fought bidding war
According to Tilden, Alaska Air struck the transaction with Virgin America after a “hard-fought battle that was intensely competitive” against JetBlue Airways Corporation (NASDAQ:JBLU), which entered the bidding process in January.
Virgin America CEO David Cush said JetBlue’s final bid was “fairly close” to Alaska Air’s offer. He expected the deal to close in the next several months.
Tilden expected the Federal Aviation Administration (FAA) to grant a single operating certificate for the combined company over the next 18 months to two years.