Is the suspense regarding the sale of low-cost carrier Virgin America (VA –Snapshot Report) over? If media reports are to be believed, then the answer would be “Yes”. The bidding war between JetBlue Airways Corporation (JBLU – Analyst Report) and Alaska Air Group (ALK – Analyst Report) over the acquisition of Virgin America has reportedly been settled in favor of the latter.
Multiple media reports have suggested that Alaska Air will pay more than $2 billion ($2.5 billion, according to Wall Street Journal) to buy the California-based airlines. The offer price per share will vary in the range of $56 and $58, per Reuters. Reports have stated that the deal to buy Virgin America will be announced by the Seattle, WA-based carrier on Apr 4.
We would like to remind investors that Virgin America, partly owned by British billionaire investor, Richard Branson, went public in Nov 2014. The carrier has performed well since its IPO driven by the disciplined cost structure and focus on customer-friendly ways.
If all goes well, the tie up between Virgin America and Alaska Air would be the first significant merger in the airline space since late 2013 when AMR (American Airlines’ parent group) and US Airways combined to create American Airlines Group (AAL – Analyst Report). With the buyout, if successful, Alaska Air would be able to expand to several key markets.
Media reports further suggested that Alaska Air, by combining with Virgin America, would climb to the fifth spot among the U.S. carriers in terms of traffic displacing JetBlue Airways. The deal, if announced, is likely to undergo immense scrutiny by regulators before being cleared. Investors’ attention would be focused on whether the rumors regarding the proposed deal are confirmed.
Zacks Rank
Both Virgin America and Alaska Air Group currently carry a Zacks Rank #3 (Hold). A better-ranked stock in the airline space is China Eastern Airlines Corp. Ltd. (CEA – Snapshot Report) sporting a Zacks Rank #1 (Strong Buy).
