Virgin America suitor JetBlue emerged months after Alaska
JetBlue Airways (NASDAQ:JBLU) became involved in Virgin America’s (NASDAQ:VA) sale process in 2016, a source close to the situation said. While other potential buyers also looked at the airline, JetBlue was the only major party involved in addition to Alaska Air Group (NYSE:ALK), the source added.
Last week, Seattle-based Alaska announced plans to acquire San Francisco-based Virgin for USD 4bn, including assumption of debt. The deal is projected to close by the end of the year.
Speaking on a conference call discussing the deal, Alaska executives said they had engaged in fierce bidding against rival JetBlue to acquire Virgin. Alaska initially contacted Virgin last fall, CEO Brad Tilden said on the call.
A source familiar with the matter said that Alaska moved for Virgin significantly earlier than JetBlue. This source declined to detail a timeline of the Long Island City, New York-based airline’s involvement but emphasized there was an opportunity for Alaska and JetBlue to explore their views on valuation.
Two days ahead of the 4 April deal announcement, the Wall Street Journal reported that Alaska was expected to emerge as victor for Virgin after beating “a rival bid” by JetBlue.
According to the source familiar, the Virgin process heated up in the days ahead of the final bid date of 31 March.
Each of the sources and a sector adviser said they did not expect an alternative offer to surface for Virgin for various reasons including valuation, prospective antitrust concerns or limited synergies.
Alaska’s proposed transaction represents a 47% premium to Virgin’s stock price before press reports on the expected deal leaked.
Reflecting on the steep price, the sector adviser noted the value of incumbency at real estate-constrained airports. “These days it’s a lot cheaper to buy your competitor than spend billions of dollars trying to drive them out,” he said.
The combined company is projected to achieve USD 225m annually in total net synergies at full integration. One of the sources dubbed this figure conservative.
The proposed Virgin/Alaska combination is not a cost cutting story, said the source familiar. “It’s about the use of operations and measures of productivity,” said the same source, underscoring that these two airlines share a similar approach on their use of technology.
“There is a strategic vision for making Seattle and San Francisco hubs.”
BofA Merrill Lynch, UBS and Cowen & Company advised Alaska on the deal, while Virgin America worked with Evercore. The companies and their investment banks either declined to comment or did not return requests for comment.