How Will The Expected Return On The Alaska Air-Virgin America Merger Compare With The Previous Deals In The Sector?
Last month, Alaska Air (NYSE:ALK) announced its plans to acquire Virgin America (NASDAQ:VA), paying $57 per share in cash and assuming long-term debt and capitalized aircraft operating leases worth $1.4 billion, for a total transaction value $4 billion. The primary objective of the deal is to expand Alaska Air’s footprint in California and to strengthen its competitiveness against the top four US airlines. The combined entity is expected to generate annual revenue of more than $7 billion.
Alaska Air anticipates revenue and cost synergies of roughly $225 million, to be realized at the time of full integration. Also, the airline forecasts one-time merger related costs in the range of $300-$350 million. Based on these figures, the airline anticipates the deal to generate average annual returns of 3.1% over time. While the deal value of the proposed merger is lower than some of the transactions completed in the last few years, the expected return from the deal is likely to be comparable or even better than some of the deals in the past.
Source: Alaska Air-Virgin America Merger Presentation
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Have more questions about Alaska Air (NYSE:ALK)? See the following links:
- How Will The Virgin America Deal Alter Alaska Air’s Capital Structure?
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alaska Air Group
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