After what has been described as a fierce bidding war, Alaska Airlines has secured the acquisition of Virgin America for $57.00 per share in cash, which values Virgin America at $4bn that includes existing Virgin America indebtedness and capitalized aircraft operating leases.
“With an expanded West Coast presence, a larger customer base, and an enhanced platform for growth, Alaska Airlines will be positioned to provide more choices for customers, increase competition and deliver attractive returns to investors,” Alaska Airlines said in a statement.
The combination expands Alaska Airlines' existing footprint in California, bolsters its platform for growth and strengthens the company as a competitor to the four largest US airlines. Combining Alaska Airlines' well-established core markets in the Pacific Northwest and the state of Alaska with Virgin America's strong foundation in California will make Alaska Airlines the a formidable competitor in the West Coast market.
The combined airline will also offer more frequent connections to international airline partners departing Seattle, San Francisco and Los Angeles. In addition, this transaction will open up growth opportunities in East Coast business markets by increasing Alaska Airlines' access to slot-controlled airports like Ronald Reagan Washington National Airport and the two primary New York City-area airports, John F. Kennedy International Airport and LaGuardia Airport.
"Our employees have worked hard to earn the deep loyalty of customers in the Pacific Northwest and Alaska, while the Virgin America team has done the same in California. Together we will continue to deliver what customers tell us they want: low fares, unmatched reliability and outstanding customer service," said Brad Tilden, chairman and CEO of Alaska Air Group.
David Cush, Virgin America president and CEO said, "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 has the support of the respective airline’s pilot groups: “[The] merger announcement of two great airlines coming together provides both pilot groups with an outstanding opportunity to benefit from the growth of the expanded Alaska Airlines' route network," said Captain Chris Notaro, chairman of the Alaska Airlines MEC of the Air Line Pilots Association. "We would like to welcome the professional pilots of Virgin America to the Alaska family and we look forward to a common goal of building a new joint pilot group that will benefit from a stronger and more prosperous airline that we have helped build."
"Alaska Airlines and Virgin America are both known for providing an exceptional in-flight experience, thanks in large part to the dedication of our respective flight attendants," said Jeffrey Peterson, president of the Association of Flight Attendants-CWA Master Executive Council at Alaska Airlines. "The combination of these two award-winning airlines provides an exciting opportunity for our members and for the Virgin America flight attendants, or Inflight Team Members. We look forward to joining together and building on our legacies of customer satisfaction to the benefit of both companies' passengers."
Together, the combined airline will have: 1,200 daily departures, with hubs in Seattle, San Francisco, Los Angeles, Anchorage, Alaska, and Portland, Oregon; Approximately 280 aircraft, which include regional planes, with an average age of 8.5 years.
Under the terms of the agreement, Alaska Air Group will acquire Virgin America for $57.00 per share in cash, representing a total equity value of $2.6 billion. The combined company expects to achieve $225 million annually in total net synergies at full integration. One-time integration costs are expected to be between $300-350 million. The combined airline is projected to have annual revenues of more than $7 billion. Alaska Air Group expects the transaction to be accretive to adjusted earnings per share in the first full year, excluding integration costs.
The transaction builds on both companies' strong financial performance. In 2015, Alaska Air Group achieved a record full-year adjusted net income of $842 million, which increased 47 percent over 2014. Alaska Airlines also grew passenger revenues by 5 percent year-over-year, and has increased dividend payments 175 percent since initiation in 2013. In 2015, Alaska Airlines added 20 new markets and 10 new cities to its growing network and 11 new aircraft. As of March 31, 2016, Alaska Airlines had $1.6 billion in unrestricted cash and short-term investments.
The combined organization will be based in Seattle under the leadership of Tilden and his senior leadership team. Until receiving regulatory approval to close, Tilden and Cush will co-lead a transition team, which will develop a specific integration plan.
The merger, which has been approved unanimously by the boards of directors of both companies, is conditioned on receipt of regulatory clearance, approval by Virgin America shareholders and satisfaction of other customary closing conditions. The companies expect to complete the transaction with regulators' approval no later than Jan. 1, 2017.
BofA Merrill Lynch and UBS Investment Bank acted as lead financial advisors to Alaska Airlines on the transaction. Cowen & Company also acted as a financial advisor to the company. Evercore Group acted as financial advisors to Virgin America. O'Melveny & Myers acted as legal advisors to Alaska Airlines, and Latham & Watkins acted as legal advisors to Virgin America.
Meanwhile, Airbus is under investigation by the UK Serious Fraud Office for the use of historical overseas agents. Late on Friday, Airbus said in a statement that it had “informed relevant U.K. authorities of its findings concerning certain inaccuracies relating to applications for export credit financing for Airbus customers.
“The Group believes that although some export credit financing will be temporarily unavailable, the affected customers will be able to resume obtaining such financing or refinancing in the near future. The Group is cooperating with the relevant export credit agencies to resolve this issue as soon as possible,” it added.
