Southwest Airlines has agreed to buy rival AirTran in a deal that values the Florida-based low-cost airline at $3.4 billion. Southwest’s cash and stock deal offer amounts to $7.69 a share, a 69% premium to the airline’s closing price on Sept 24, which value AirTran’s equity at $1.4 billion.
Including AirTran’s debt and aircraft leases, the value of the transaction is $3.4 billion. In the year to June 30, Southwest posted revenues of $11.2 billion, while AirTran posted revenues of $2.5 billion during the same period. Together, the companies will employ about 43,000 with 685 aircraft on the books. The combined company will be based in Dallas and operate under the Southwest brand. Shares of Southwest rose 9% to $13.39 in early Monday trading, while shares of AirTran jumped 60% to $7.29. The purchase by Southwest is a first for consolidation between two large US low-cost carriers. This deal gives Southwest a foothold in Atlanta which will put pressure on Delta. The markets are not oblivious to this fact and have ensured that Delta shares are checked accordingly. Delta shares fell about 2% to $11.50.
Southwest also now has presence in Washington DC, New York, and Boston and for the very first time it is international with routes to the Caribbean and Mexico. “The acquisition of AirTran represents a unique opportunity to grow Southwest Airlines’ presence in key markets we don’t yet serve,” says Gary Kelly, Southwest’s chief executive. “We think of ourselves as a growth company and we’re trying to make it happen.” He made it clear that Southwest was looking at further international expansion.