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Alaska Air Group Inc. is close to reaching a settlement with U.S. antitrust officials that will allow it to complete its proposed acquisition of Virgin America Inc., according to people familiar with the matter.
The settlement with the Justice Department’s antitrust division should be announced by the end of November, said one of the people. The people declined to be named because the negotiations are confidential. Details of the settlement couldn’t be learned.
The development means the companies have made progress since representatives of Alaska Air and Virgin America met with antitrust division chief Renata Hesse and other officials in September. At that time the government had concerns that the $2.6 billion transaction might 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 seeking to block it.
Spokespeople for the airlines didn’t immediately respond to requests for comment. The Justice Department declined to comment about the merger review.
Shares of Virgin rose 1.9 percent to $56.48 at 1:28 p.m. in New York, while Alaska shares climbed less than 1 percent to $79.10 after spiking on the news. Year to date, Virgin shares are up 57 percent, reflecting the premium Alaska will pay Virgin shareholders, while Alaska is down 1.8 percent.
Alaska Air argues that Virgin America’s business is largely complementary with its own and would expand its route network out of Washington state, Oregon and Alaska by adding important business centers in 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.
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, which ultimately was completed after the carriers agreed to sell airport assets to low-fare competitors including Southwest and JetBlue Airways Corp.
(Updates with shares in fifth paragraph.)
–With assistance from Michael Sasso and Mary Schlangenstein To contact the reporter on this story: David McLaughlin in Washington at firstname.lastname@example.org. To contact the editors responsible for this story: Sara Forden at email@example.com, David S. Joachim
©2016 Bloomberg L.P.
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