Alaska Air Group Inc. and Virgin America Inc. have agreed to delay their merger plans to give the U.S. Department of Justice additional time to review their $2.6 billion deal, according to a person familiar with the matter.
Antitrust officials can now take several more weeks to complete their review, said the person, who asked not to be identified because the matter isn’t public. The airlines had originally agreed not to close until Sept. 30, effectively setting a deadline for the Justice Department to give a nod to the deal or seek to block it.
Representatives for Virgin America and Alaska didn’t immediately respond to requests for comment. Mark Abueg, a Justice Department spokesman, declined to comment
Alaska Air shares declined less than 1 percent to $65.84 at 11:46 a.m. in New York. Virgin America shares were down 0.39 percent at $52.99.
Airline representatives met with antitrust division chief Renata Hesse and other officials last week to address the government’s concerns that the transaction may pose a risk to competition, a person familiar with the situation previously told Bloomberg News. Such top-level meetings have often signaled that the antitrust division has worries about a merger that could lead to a lawsuit to block it.
The spread between the offer price for Virgin America and its share price rose to $3.80 this week as investors received word of the meeting, the highest level since the deal was announced, showing that investors had become more worried about the deal’s prospects. Virgin America fell the most in seven months Thursday, the biggest decline since before the carrier agreed to be acquired by Alaska.
It is unclear whether the companies have offered to sell assets to resolve the department’s concerns. The airlines argue that by combining they will be a more effective competitor to the biggest carriers in the U.S., one of the people said.
Alaska’s agreement to buy Virgin America, announced in April, would extend a round of consolidation that has shrunk the number of carriers in the U.S. airline industry since 2005, leaving the top four operators controlling 80 percent of the market. This is the first substantial airline merger since the Justice Department sued to block US Airways Group’s takeover of American Airlines in 2013, a case that ultimately settled after the carriers agreed to sell airport assets to low-fare competitors. The government’s decision on this tie-up will be closely watched for its view on the current state of competition in the airline industry.
Bill Baer, who preceded Hesse as chief of the antitrust division and who still oversees it as the Justice Department’s No. 3 official, is keeping a close eye on concentration in the airline industry. He started an investigation last year into possible improper collusion between carriers over seating capacity, a crucial factor in determining fares. He also sued United Continental Holdings Inc., seeking to block its acquisition of takeoff-and-landing rights from Delta Air Lines Inc. at New Jersey’s Newark Liberty International Airport, saying the deal threatened to raise fares. United dropped its plan to buy the slots.
Alaska Air argues the Virgin America takeover is largely complementary and would expand its route network out of Washington, Oregon and Alaska by adding important business centers of Los Angeles and San Francisco as well as rights to operate at New York’s LaGuardia and Kennedy, New Jersey’s Newark Liberty and Washington’s Reagan National airports.
Cross-country routes between New York and California are among the most lucrative in the domestic industry. With the merger, Alaska hopes to become the carrier of choice in California, where it faces stiff competition from Southwest Airlines Co. and United Continental Holdings Inc.
–With assistance from Mary Schlangenstein Michael Sasso and Brendan Case.
©2016 Bloomberg L.P.
This article was written by Sara Forden and David McLaughlin from Bloomberg and was legally licensed through the NewsCred publisher network.