Blog Coverage Alaska Air and Virgin America Agree to Extend Regulatory Period for Review of Merger by DoJ

LONDON, UK / ACCESSWIRE / September 27, 2016 / Active Wall St. blog coverage looks at the headline from Alaska Air Group, Inc. (NYSE: ALK) and Virgin America Inc. (NASDAQ: VA). Both companies announced on September 26, 2016 that they would not close the merger before October 17, 2016, till they receive a written consent from the Antitrust Division of the United States Department of Justice (DoJ). Register with us now for your free membership and blog access at: http://www.activewallst.com/register/.

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The Merger

Alaska Airlines, a subsidiary of Alaska Air Group, had announced their decision to acquire Virgin Airlines in April 2016 in a deal valued at $4 billion which included a cash component of $2.6 billion. The merger would create the fifth largest airline in the US in terms of capacity and the merged airline would have annual revenue of more than $7 billion. Alaska Airlines would gain access to valuable space at major California airports and lucrative transcontinental routes. It would also give Alaska Airlines a wider network without raising costs as both airlines do not have many overlap in routes that they operate. The Boards of Directors of both airlines had approved the merger and were awaiting clearance from the Antitrust Division of DoJ and had expected the finalization of merger by January 2017. In August 2016, Alaska Air grew its capacity to 10.3% and Virgin America to 16.4%.

The review by Antitrust Division of Department of Justice

The Airlines industry has seen a series of consolidation in the last few years thereby reducing the number of players to just four carriers – Delta, United Continental, Southwest and American – all of whom have control of over 84% of the entire market. Thus the interest of the Antitrust Division of DoJ and the US Department of Transportation in this merger is only natural as it poses a risk to competition. The DoJ had asked for additional information from both companies in May 2016.

DOJ had blocked the US Airways Group’s takeover of American Airlines in 2013. The US Airways-American Airlines merger was later on settled after the airlines had agreed to sell their airport assets to low-cost airlines. This clears the stand that the DoJ is keen to increase competition in the low-cost airline sector. Another major factor keeping the DoJ on its toes is the underhand complicity between airlines over seating capacity, which is a critical factor determining the fares. The DOJ has also been keenly studying the gates or take-off-and-landing rights which it feels should again be promoting low-cost airlines.

Alaska and Virgin Airlines stand on review by Antitrust Division of Department of Justice

Recently representatives of both airlines had met with the Chief of the Antitrust Division as well as other officials to address their concerns. Both airlines are of the opinion that their merger is pro-competition and pro-consumers. Their combined entity would give competition to the “big four” by way of reduced fares and choices to the consumers. Both airlines are confident that they will get the necessary approvals from regulatory authorities and that the DoJ will agree to the merger.

Stock Performance

On Monday, September 26, 2016, Alaska Air Group’s share price finished yesterday’s trading session at $64.60, sliding 1.78%. A total volume of 1.41 million shares exchanged hands. The stock has advanced 16.55% in the last three months. The stock is trading at a PE ratio of 8.96 and has a dividend yield of 1.70%.

Virgin America’s shares were down 1.39%, finishing the day at $53.30 with volume of 1.93 million shares exchanging hands by the close of the trading session. For the last six months, the stock has rallied 40.30%. Furthermore, on a year to date basis, the stock surged 48.01%. Shares of the company have a PE ratio of 7.46.

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