Alaska Air Group, Inc. (NYSE: ALK), the parent of Alaska Airlines, announced on Monday morning that it had reached a deal to acquire Virgin America Inc. (NASDAQ: VA), winning a frenzied bidding war with rival JetBlue Airways Corporation (NASDAQ: JBLU).
The parent company of Alaska Airlines stated it would pay $57 per share for Virgin, which is 47% premium compared with Friday’s closing price, accounted total equity value of $2.6 billion.
This acquisition followed a bidding process that saw Alaska Air and JetBlue Airways square off, but Alaska Air, one of the rare airlines to hold an investment-grade credit rating, ultimately triumphed.
“With our expanded network and strong presence in California, we’ll offer customers more attractive flight options for nonstop travel,” Brad Tilden, the Alaska Air chairman and chief executive, said, “We look forward to bringing together two incredible groups of employees to build on the successes they have achieved as stand-alone companies to make us an even stronger competitor nationally.”
Alaska Air said it expects to finish the deal by Jan. 1, 2017 which would boost its annual revenue by 27% and increase its earnings in the first year.
The combination between Alaska Air and Virgin America, which is expected to undergo scrutiny from the U.S. Justice Department, would create the No. 5 U.S. airline by traffic, eclipsing JetBlue, which currently holds that spot. However, the combined company still would be very small compared with the largest four U.S. airlines companies, all expanded by recent mergers, that control more than 80% of domestic capacity.
Stock price of Alaska Air was down 4.83% to $70.05 while Virgin America jumped up 40.16% to $54.52 during Monday morning trading.