Alaska Air to buy Virgin America for $2.6bn

Apr 04, 2016, 1:53 PM EDT
An Alaska Air plane.
(Source: Alex McKnight Follow/flickr)

Alaska Air will buy Virgin America for $2.6 billion, and the combined firm will keep its HQ in Seattle.

Reuters reports:

The deal appears to end what Alaska Air Chief Executive Officer Brad Tilden called a "hard-fought competition" to purchase Virgin America. JetBlue Airways Corp (JBLU.O) had also made an offer for the offshoot of billionaire Richard Branson's London-based Virgin Group, which had become famous for its mood lighting and media-rich entertainment on flights. The deal would create the fifth-largest U.S. airline after a decade of mergers that have shrunk the industry to a handful of companies. The top four control more than 80 percent of the U.S. travel market. Virgin America accounts for about 1.5 percent of U.S. domestic flight capacity, while Alaska Air and its Horizon Air subsidiary account for 5 percent, Deutsche Bank analyst Michael Linenberg wrote in a recent research note. Shares of Alaska Air were down 4.6 percent at $78.22 in morning trading, while Virgin America jumped 40 percent to $54.47. That was still below the $57-per-share bid, which represents a premium of about 86 percent from Virgin America's stock price before reports in March that the airline was considering a sale.

The Seattle Times notes:

Alaska would leapfrog JetBlue, which it beat in the bidding for Virgin America, to become the fifth-largest U.S. airline, after American, Delta, United and Southwest. And San Francisco would become a second major California hub for Alaska, whichflies many routes from Los Angeles. Alaska Airlines brand will be retained. In a presentation about the merger plan, Alaska said, “We will explore options for the Virgin America brand in future.” The bidding war with JetBlue forced Alaska to pay a premium well beyond Virgin America’s current market capitalization of $1.7 billion, already inflated from $1.5 billion since news of a potential sale emerged. The Alaska senior management team, led by Tilden, will lead the merged airline. Virgin America chief executive David Cush along with his executive team will leave the company, according to a person with knowledge of the details. In the months ahead, government regulators will have to decide whether to oppose the acquisition on antitrust grounds. If it isn’t blocked, Alaska will likely have to stop touting itself in Seattle as “proudly all-Boeing.”

CNN Money writes:

Virgin America was launched in 2007 by billionaire Richard Branson and went public in November 2014. "I would be lying if I didn't admit sadness that our wonderful airline is merging with another," Branson said on Monday. As of December 2015, Branson's Virgin Group owned 18.2%. That made it Virgin America's second largest shareholder behind New York hedge fund Cyrus Holdings, which has a 27.9% stake. Branson said he was "sadly" unable to stop the takeover because some of his shares were non-voting. "The important thing now is to ensure that once Alaska witnesses firsthand the power of the brand and the love of Virgin America customers for our product and guest experience, they too will be converts," he added.