Virgin America (VA) to Be Acquired by Alaska Air Group for $2.6 Billion

Shares of Virgin America Inc. were trading up +15.63 or +40.16 percent to $54.53 per share in Monday’s premarket after news broke early this morning that it would be acquired by Alaska Air Group (ALK), parent of Alaska Airlines for $2.6 billion in cash. Virgin America Inc. stock closed at $38.90 per share, up +0.34 or +0.88 percent in Friday’s regular trading session.

Burlingame, California based Virgin America Inc. was originally started by the UK based Virgin Group as Virgin USA in 2005.
The new airline was renamed to Virgin America and began service in August of 2007. The airline provides affordable high quality service between 24 major U.S. cities on both coasts and has its main hub at San Francisco International airport, with additional focus hubs at Los Angeles International Airport and Dallas Love Field. Richard Branson, founder of the Virgin Group continues to own a minority interest of 25 percent of the company with VAI Partners, a U.S. partnership owns 75 percent. Virgin America had its initial public offering in 2014 at $23 per share.

Originally founded as Alaska Airlines in 1932, SeaTac, Washington based Alaska Air Group Inc. was formed in 1985 after the company bought Horizon Air followed by the acquisition of Jet America in 1986. Alaska Airlines then merged with Jet America in 1987. The holding company operates through three major segments: Alaska Mainline, Alaska Regional, and Horizon. The airlines service 100 cities in Alaska, the 48 continental United States, Hawaii, Canada, Mexico, and Costa Rica. The company’s fleet consists of 147 Boeing 737 jet aircraft and 52 Bombardier Q400 turboprop airplanes.

The transaction, which was unanimously approved by the boards of both companies, will have Alaska Air Group pay $57 per share in cash for all outstanding Virgin America shares or approximately $2.6 billion. With the assumption of Virgin’s debt and aircraft operating leases the deal could be worth as much as $4 billion according to Alaska Air.

Virgin America President and Chief Executive Officer David Cush said that, “Our mission has always been to create an airline that people love – and we accomplished that while changing the industry for the better. Joining forces with Alaska Airlines will ensure that our mission lives on, and that the stronger, combined company will continue to be a great place to work and an airline that focuses on an outstanding travel experience.”

The merger of the two carriers will produce a combined fleet of about 280 aircraft with approximately 1,200 daily departures from hubs in San Francisco, Seattle, Los Angeles, Portland and Anchorage. Alaska Air estimates one-off integration costs of between $300 million and $350 million and expects to achieve $225 million in annual net synergies upon it full integration with Virgin America.

In addition, Alaska Air expects the acquisition to increase revenues by +27 percent to over $7 billion and will be accretive to adjusted earnings per share in the first year of operation for the merged company. The merger is still subject to Virgin America shareholder approval, as well as the customary regulatory approvals and is expected to be completed by the beginning of 2017.

Despite making over $700 million on the deal, Sir Richard Branson, minority owner of Virgin expressed dismay, saying “I would be lying if I didn’t admit sadness that our wonderful airline is merging with another. Because I'm not American, the US Department of Transportation stipulated I take some of my shares in Virgin America as non-voting shares, reducing my influence over any takeover. So there was sadly nothing I could do to stop it.”

Other News About VA

Smaller Airlines Looking to Expand With Virgin America Acquisition

WSJ article published when JetBlue was also considering a merger with Virgin America.

Sir Richard Branson could make nearly £500m from sale of Virgin America

Cyrus Capital Partners with a 28 percent stake stand to make $600 million on the takeover.

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Published on Apr 4, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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