VA Weighs Sale After Receiving Interest
#441
Gets Weekends Off
Joined APC: Mar 2006
Position: guppy CA
Posts: 5,171
I read the WSJ article before posting. At this point, no one who knows is telling what the structure of the deal is. I'd be surprised if it's more than a small amount of cash involved. Using stock for most or all of the deal allows Alaska to overpay for the deal.
#442
This is the same WSJ article
Alaska Air Nears Virgin Deal After Frenzied Bidding
Alaska Air Nears Virgin Deal After Frenzied Bidding
Alaska Air Nears Virgin Deal After Frenzied Bidding
© David Paul Morris/Bloomberg News
Quotes in the article
Alaska Air Group Inc. is expected to announce Monday that it won the auction for Virgin America Inc., besting rival JetBlue Airways Corp. in a frenzied bidding process that culminated in a cash price of about $2.5 billion, according to people familiar with the matter.
This new chapter in airline consolidation amid low-fare carriers comes at a premium. The deal signed Friday night, according to one of the people, was more than $1 billion over Virgin America’s market capitalization on Friday, which had started to rise last month on takeover speculation.
Bidding between Alaska Airlines’ parent and JetBlue was feverish, this person said, with the price continuing to rise. Alaska prevailed in part because of its clean balance sheet, which will allow it to more easily borrow funds for the acquisition, the person said.
A person familiar with the jousting said it was “a fierce back and forth between the two sides, with multiple bids for a number of days.” But ultimately, JetBlue “put the pencil down” because the price had gotten too high.
Alaska, an 84-year-old airline based in Seattle, has an investment-grade credit rating, no net debt and $1.3 billion of cash, according to its latest financial disclosures. JetBlue, which began flying in 2000, had $876 million of cash at year-end and an undrawn $600 million credit line. Its debt stood at $1.8 billion. Due to low fuel prices of late, both are highly profitable.
The combination of Alaska 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. But the combined company still would be very small compared with the largest four U.S. airlines, all expanded by recent mergers, that control more than 80% of domestic capacity.
San Francisco-based Virgin America, which began flying in 2007, is 54%-owned by Richard Branson’s Virgin Group Ltd. and New York-based Cyrus Capital Partners LP. The company went public in November 2014.
Another person familiar with the situation said Virgin Group agreed to the sale “because, effectively, they got a good offer” and because the group’s voting rights were weak in order to be compliant with U.S. regulations that limit foreign entities from holding more than a certain percentage of a U.S. carrier’s shares.
Alaska made the first approach to San Francisco-based Virgin around the beginning of the year, this person said. Cyrus Capital didn’t respond to calls for comment.
The addition of Virgin America would materially boost Alaska’s presence at the important California airports in San Francisco and Los Angeles. The two have only six routes that overlap and their costs are similar.
For all of 2015, Virgin America’s unit cost—the cost to fly a seat a mile, excluding fuel and profit sharing—was 7.47 cents. Alaska’s unit cost in its jet division, excluding its commuter planes, was 7.39 cents.
Dubbed an industry hybrid, Alaska is one of the few pre-deregulation airlines to avoid bankruptcy-court protection.
The company, a traditional network airline like its larger rivals, has been cutting its costs for more than a decade to fight incursions into its West Coast base by discounter Southwest Airlines Co. and others.
Today, Alaska has low costs but still offers passengers some perks without a plethora of fees. It also expanded its route map and now serves most major markets in the East and Midwest and recently made a big bet on Hawaii. It routinely wins customer-service awards, is known for being punctual and enjoys relative labor peace.
Virgin, which has 57 aircraft, 2,600 employees and carried 7 million passengers last year, only turned profitable in 2013. But it also wins customer-service awards and has a devoted following in Silicon Valley. It recently launched service to Hawaii, Denver and Love Field in Dallas and services transcontinental routes from Los Angeles and San Francisco to the East Coast.
While Virgin is an Airbus operator and Alaska’s jet fleet is exclusively Boeing Co., some experts don’t expect that to matter, given that the economics of operating a single fleet type diminish if the second fleet is big enough to bring advantages.
A person familiar with the matter said JetBlue was the better fit, because of the similarities between its labor relations and fleet with Virgin America, which would have created superior synergies.
But Alaska made the “bold move” by bidding up the offer because it wanted to diversity out of its Seattle base—which is being encroached by Delta Air Lines Inc.’s buildup there—and add to its transcontinental route portfolio.
Write to Susan Carey at [email protected], Robert Wall at [email protected] and Dana Mattioli at [email protected]
© David Paul Morris/Bloomberg News
Quotes in the article
Alaska Air Group Inc. is expected to announce Monday that it won the auction for Virgin America Inc., besting rival JetBlue Airways Corp. in a frenzied bidding process that culminated in a cash price of about $2.5 billion, according to people familiar with the matter.
This new chapter in airline consolidation amid low-fare carriers comes at a premium. The deal signed Friday night, according to one of the people, was more than $1 billion over Virgin America’s market capitalization on Friday, which had started to rise last month on takeover speculation.
Bidding between Alaska Airlines’ parent and JetBlue was feverish, this person said, with the price continuing to rise. Alaska prevailed in part because of its clean balance sheet, which will allow it to more easily borrow funds for the acquisition, the person said.
A person familiar with the jousting said it was “a fierce back and forth between the two sides, with multiple bids for a number of days.” But ultimately, JetBlue “put the pencil down” because the price had gotten too high.
Alaska, an 84-year-old airline based in Seattle, has an investment-grade credit rating, no net debt and $1.3 billion of cash, according to its latest financial disclosures. JetBlue, which began flying in 2000, had $876 million of cash at year-end and an undrawn $600 million credit line. Its debt stood at $1.8 billion. Due to low fuel prices of late, both are highly profitable.
The combination of Alaska 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. But the combined company still would be very small compared with the largest four U.S. airlines, all expanded by recent mergers, that control more than 80% of domestic capacity.
San Francisco-based Virgin America, which began flying in 2007, is 54%-owned by Richard Branson’s Virgin Group Ltd. and New York-based Cyrus Capital Partners LP. The company went public in November 2014.
Another person familiar with the situation said Virgin Group agreed to the sale “because, effectively, they got a good offer” and because the group’s voting rights were weak in order to be compliant with U.S. regulations that limit foreign entities from holding more than a certain percentage of a U.S. carrier’s shares.
Alaska made the first approach to San Francisco-based Virgin around the beginning of the year, this person said. Cyrus Capital didn’t respond to calls for comment.
The addition of Virgin America would materially boost Alaska’s presence at the important California airports in San Francisco and Los Angeles. The two have only six routes that overlap and their costs are similar.
For all of 2015, Virgin America’s unit cost—the cost to fly a seat a mile, excluding fuel and profit sharing—was 7.47 cents. Alaska’s unit cost in its jet division, excluding its commuter planes, was 7.39 cents.
Dubbed an industry hybrid, Alaska is one of the few pre-deregulation airlines to avoid bankruptcy-court protection.
The company, a traditional network airline like its larger rivals, has been cutting its costs for more than a decade to fight incursions into its West Coast base by discounter Southwest Airlines Co. and others.
Today, Alaska has low costs but still offers passengers some perks without a plethora of fees. It also expanded its route map and now serves most major markets in the East and Midwest and recently made a big bet on Hawaii. It routinely wins customer-service awards, is known for being punctual and enjoys relative labor peace.
Virgin, which has 57 aircraft, 2,600 employees and carried 7 million passengers last year, only turned profitable in 2013. But it also wins customer-service awards and has a devoted following in Silicon Valley. It recently launched service to Hawaii, Denver and Love Field in Dallas and services transcontinental routes from Los Angeles and San Francisco to the East Coast.
While Virgin is an Airbus operator and Alaska’s jet fleet is exclusively Boeing Co., some experts don’t expect that to matter, given that the economics of operating a single fleet type diminish if the second fleet is big enough to bring advantages.
A person familiar with the matter said JetBlue was the better fit, because of the similarities between its labor relations and fleet with Virgin America, which would have created superior synergies.
But Alaska made the “bold move” by bidding up the offer because it wanted to diversity out of its Seattle base—which is being encroached by Delta Air Lines Inc.’s buildup there—and add to its transcontinental route portfolio.
Write to Susan Carey at [email protected], Robert Wall at [email protected] and Dana Mattioli at [email protected]
#443
Line Holder
Joined APC: Apr 2008
Posts: 69
58% of VX is owned by 3 major investors including the Virgin Group and I'm fairly confident that they don't want shares of Alaska as compensation, they'll want cash. The remaining public shares could be paid for with stock though I'm sure.
#444
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Joined APC: Mar 2006
Position: guppy CA
Posts: 5,171
And what you're suggesting - two different offers to shareholders - is likely illegal.
#445
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Posts: 3,655
Delta only paid $3.1 Billion for NWA so that deal isn't looking too shabby in hindsight!
#446
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Posts: 243
#447
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Posts: 3,655
#448
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#449
Gets Weekends Off
Joined APC: Mar 2006
Position: guppy CA
Posts: 5,171
#450
Gets Weekends Off
Joined APC: Dec 2014
Posts: 155
The threat of JB growing on the west coast forced a sell of a 1.6 billon dollar company for 2.6 billion. Good on the JB management for realizing it wasn't worth 2.6B for gates and leased airplanes.
Last edited by WhiteHammer; 04-04-2016 at 04:55 AM.
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