Alaska (ALK) - Get Report will purchase Virgin America (VA) , creating a West Coast airline with $7 billion in annual revenue and five hubs including San Francisco and Seattle. The merger will eliminate the most recent airline startup, which almost reached its ninth birthday.
Alaska will acquire Virgin for $57 a share in cash. In premarket trading, the deal pushed Virgin shares to $54.15, up $15.25. Alaska shares traded at $77.99, down $4.02.
The deal is valued at $4 billion, including $2.6 billion for the equity purchase as well as Alaska's acquisition of debt and aircraft leases. Integration costs are valued at $300 million to $350 million. Synergies are estimated at $225 million.
It will become the fifth-largest U.S. airline, with 1,200 daily departures and hubs in Seattle, San Francisco, Los Angeles, Anchorage and Portland.
Alaska will also enhance its position at a half dozen congested airports, including LaGuardia and John F. Kennedy International in New York, Reagan Washington National and Los Angeles International.
Alaska will operate a fleet of 280 aircraft, including regional aircraft and apparently including Virgin America's 60 Airbus A319s and A320s. In a press release, the carriers made no mention of abandoning the Virgin America fleet in favor of Alaska's Boeing fleet.
Alaska will retain its Seattle headquarters and will continue to be led by CEO Brad Tilden. He and Virgin American CEO David Cush will co-lead a transition team.
The carriers said Alaska "will work closely with Virgin America to learn more about the award-winning Virgin America brand and customer experience, (and) over the next few months Alaska will explore with the Virgin Group how the Virgin America brand could continue to serve a role in driving customer acquisition and loyalty to get the best from both brands."
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.