Monday, September 26, 2016

Alaska, Virgin America agree to extend merger review period

Alaska Air Group and Virgin America have agreed to delay their proposed merger to give the U.S. Department of Justice more time to evaluate the planned transaction.

When Alaska (NYSE:ALK) and Virgin America (NASDAQ:VA) announced the deal on April 4, the companies said they expected to complete the transaction “[W]ith regulators' approval no later than Jan. 1, 2017.” That date was restated in a May 16 news release issued by Alaska about the merger.

On June 15, Alaska and Virgin entered into a timing agreement with Justice outlining the phasing of certain steps to be taken in connection with the merger. Under that timing agreement, the carriers agreed to provide the DOJ with materials on a planned schedule, and also agreed not to consummate the merger prior to Sept. 30 unless the DOJ closed its investigation sooner.

In a joint news release issued Sept. 26, the two carriers stated they have agreed to a delay of that stated date and would not consummate the acquisition prior to Oct. 17, again unless the DOJ provides written concurrence to close within a shorter period.

A report published by Bloomberg News on Sept. 23 and run by a number of media outlets reported that the airlines had pleaded their case to top DOJ officials during the week prior, according to “people familiar with the matter.” The article characterized the meeting as an indication that negotiations over whether the government would allow the deal to move forward were in their final stages.

According to a subsequent Bloomberg article, the DOJ’s Anti-Trust Division is concerned that the deal may undermine competition in some markets. The extension gives the DOJ additional time to review the planned transaction.

“The two airlines are confident they will address any concerns and obtain regulatory approval to complete their pro-competition, pro-consumer transaction,” they said in their joint news release.

“Given the airlines’ largely complementary networks, the relative size of this merger compared to past airline combinations, and both Virgin America and Alaska’s emphasis on customer service, the airlines are also confident the DOJ will agree this merger will provide consumers more choices and lower fares while allowing for more robust competition against the Big Four airlines, which control 84 percent of the domestic market,” the statement continued.

The deal calls for Alaska to acquire Virgin America for $57.00 per share in cash, representing a total equity value of $2.6bn. Total value of the deal, which includes existing Virgin America indebtedness and capitalized aircraft operating leases, is approximately $4bn.

Alaska Airlines and Virgin America are two of the most respected aviation brands in the United States and both have won numerous awards and accolades for excellent customer service. In the 2015 SKYTRAX World Airline awards, Virgin America was awarded Best Airline in North America, Best Low-Cost Airline in North America, Best Airline Staff Service in North America and No. 26 of the world's top 100 airlines. Alaska Airlines was named No. 65 of the world's top 100 airlines in the SKYTRAX awards. Alaska has also held the top spot among traditional carries in the J.D. Power North America Customer Satisfaction survey for eight consecutive years.

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Merger graphic provided by Alaska Air Group
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