A battle between Alaska Air Group and JetBlue Airways to win Virgin America’s hand was fought until the very last moment, with rapid counter-offers from the two airlines before Alaska triumphed with its proposal to pay $2 more per share for Virgin America’s stock.
Alaska’s offer to acquire Virgin America’s outstanding stock at $57 per share – a price that has surprised the industry – edged out on the last day JetBlue’s final and best offer of $55 per share, regulatory filings released on 22 April show.
Seattle-based Alaska’s offer, made on 1 April, was conditioned that a merger agreement with Virgin America be signed that very evening.
JetBlue chose to not counter offer in the final lap. Speaking on the airline’s first quarter earnings call today, JetBlue chief executive Robin Hayes said: “The price had reached such a level where it became clear that organic growth was better [for us].”
An acquisition of Virgin America, however, would have helped JetBlue more quickly build a US west coast presence, he says.
Despite losing out to Alaska, Hayes says that JetBlue is confident in its own growth plan, and that a merger with Virgin America would have been a “nice-to-have rather than a must-have”.
The proposed merger between Alaska and Virgin America, announced on 4 April, is the culmination of talks between the two that had started in November 2015, the filings show.
However, JetBlue was actually the first carrier that had met with Virgin America regarding a potential merger, in September 2014 before Virgin America became a listed carrier in November that year. The talks with JetBlue did not lead to a relationship, and Virgin America went ahead with its initial public offering.
At one point, two other US carriers also expressed interest in Burlingame, California-based Virgin America. These two carriers, referred to as “company B” and “company C”, are not named in the filings. JetBlue, which has publicly acknowledged bidding for Virgin America, is referred to as “company A”.
Alaska’s pursuit of Virgin America had started in November 2015, when Alaska chief executive Brad Tilden approached the airline’s chairman Donald Carty to discuss a potential acquisition. This came months after an executive from the unnamed “company B” also spoke with Carty about a possible merger.
In December 2015, Virgin America’s board decided to hire Seabury Aviation Consulting to review possible synergies in the event of a merger with each of Alaska, JetBlue and “company B”. That same month, Alaska offered a non-binding indication of interest to acquire Virgin America’s stock for $44.75 per share – almost $14 lower than what it will now pay.
Virgin America’s management sat down to review Seabury’s analyses on 8 February. The studies found that potential synergies with JetBlue would be “slightly higher” than what could be achieved with Alaska, say the filings. Synergies with the unnamed “company B” would be “significantly lower” than what could be achieved with either JetBlue or Alaska. Shortly after, “company B” appeared to drop its interest in Virgin America.
On 12 February, JetBlue submitted a non-binding indication of interest to acquire Virgin America’s stock for $43 per share.
For a brief moment, it looked almost as if JetBlue was in the lead. On 16 February, Alaska’s financial representatives got in touch with Virgin America and asked if the airline would consider a lower offer price, saying that Alaska “may no longer be willing to offer $44.75 per share.”
Between 16 February and 29 February, Virgin America’s financial advisor Evercore met with Alaska’s financial representatives to encourage Alaska to “re-engage in the process and improve upon its initial offer”.
Both Alaska and JetBlue were requested on 25 February to submit revised proposals to Virgin America’s board. On 29 February, Alaska came back with a proposal for $45 per share. Two days later, JetBlue counter-offered with $46 per share.
The bidding war was on.
Both carriers were asked to submit best and final offers later that month, during which the unidentified “company C” informed Carty that it does not plan to make an offer, as it did not believe it could obtain regulatory approval for a merger.
On 31 March, Alaska and JetBlue presented their revised offers. Alaska had upped the price to $48 per share, but JetBlue offered $50 per share. After Alaska was told it would need to improve its offering, it came back on the morning of 1 April with an offer of $53.50 per share.
That afternoon, JetBlue counter-offered with $55 per share in its best and final offer. Virgin America’s representatives then informed Alaska that it would need to increase its offer, and that “an offer price of $57 per share would likely close the auction process”, say filings.
Alaska agreed, on the condition that a merger agreement be signed that evening. JetBlue’s Hayes informed Virgin America chief executive David Cush afterwards that JetBlue would not be willing to increase its offer any further. A merger agreement was signed that night between Virgin America and Alaska, for the final price of $57 per share.
Virgin America’s stock closed at $38.90 per share that day.
Source: Cirium Dashboard