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Alaska Air Group, Inc. (NYSE: ALK), parent company of Alaska Airlines, agreed to acquire Virgin America, Inc. (NASDAQ: VA) for $57.00 per share in cash in a $4 billion deal, including existing Virgin America indebtedness and capitalized aircraft operating leases. With an expanded West Coast presence, a larger customer base, and an enhanced platform for growth, Alaska Airlines will be positioned to provide more choices for customers, increase competition and deliver attractive returns to investors. The merger, which has been approved unanimously by the boards of directors of both companies, is conditioned on receipt of regulatory clearance, approval by Virgin America shareholders and satisfaction of other customary closing conditions. The companies expect to complete the transaction with regulators’ approval no later than Jan. 1, 2017. Virgin America was said to have reached out to potential buyers about a sale of the company a week ago. The move was largely driven by the Burlingame, California-based low-cost airline’s largest shareholders, the UK Virgin Group‘s affiliate VX Holdings LP, and New York hedge fund Cyrus Capital‘s affiliate Cyrus Aviation Holdings LLC, which jointly controlled over 50% of the airline. On November 2014, Virgin America raised $306 million in an IPO priced at $23 a share, led by Barclays and Deutsche Bank, valuing the company at about $973 million. On March 16, 2015, Virgin America filed an S-1 registration with the SEC, disclosing the intention of its largest shareholders, Virgin Group’s affiliate VX Holdings LP, and Cyrus Capital’s affiliate Cyrus Aviation Holdings LLC, to sell 4,852,942 shares of the company in a secondary offering led by Barclays and Deutsche Bank. Virgin America, known for its fancy aircraft interiors, including on-board WiFi, interactive video displays and purple lighting, licenses its brand from billionaire Sir Richard Branson’s Virgin Group. However, the British entrepreneur is only permitted to own a minority stake under 25% in the American airline. U.S. law requires that domestic airlines remain under the control of U.S. citizens, with no more than 25% of the voting stock being held by foreign citizens. As a matter of policy, the U.S. Department of Transportation’s (DOT) reviews any proposed ownership changes of over 10 percent of the voting stock of any U.S.-domiciled airline. New York-based hedge fund Cyrus Capital Partners LP and affiliates, have been the airline’s principal U.S. investors since 2010. As of December 31, 2015 Cyrus Capital Partners held a 23.8% interest in Virgin America, down from 29% prior to the March 2015 S-1 offering. Cyrus Capital Partners, previously known as Och-Ziff Freidheim Capital Management until 2005, was founded in 1999 by Stephen Cyrus Freidheim, a former managing director and partner at Bankers Trust Company of New York, where he headed its Capital Management Group from 1993 to 1999. He serves as an independent director of Virgin America since 2006. He also held leadership roles at Nomura Securities International and Peabody & Co. Inc., and is a member of The Council on Foreign Relations. He earned a B.A. in Economics from Yale University, and was the president of the Yale Alumni Association of Greenwich. His father Cyrus F. Freidheim, Jr. is also a member of Virgin America’s board of directors since 2006. From 2006 to 2009, Cyrus F. Freidheim, Jr. served as CEO and president of Sun-Times Media Group Inc., a parent company of Sun-Times News Group (formerly Conrad Black’s Hollinger International Inc.), which filed for chapter 11 bankruptcy protection in March 2009. Previously, he served as CEO and president of Chiquita Brands International Inc., and held various leadership roles at management consulting firm Booz Allen & Hamilton Inc., including president of BoozAllen International. Cyrus Capital Partners is an SEC registered investment adviser with offices in New York and London. The firm has approximately $4 billion in assets under management. Cyrus invests on a global basis in securities and loans issued by corporates and sovereigns. It invests across the entire capital structure of companies, takes long and short positions in debt, equity and derivative instruments traded publicly and over the counter, directly structures capital solutions for companies, and leads capital raises. Cyrus is an active investor that is deep value-focused and experienced in legal and process-oriented opportunities. The combination with Virgin America expands Alaska Airlines’ existing footprint in California, bolsters its platform for growth and strengthens the company as a competitor to the four largest U.S. airlines. Combining Alaska Airlines’ well-established core markets in the Pacific Northwest and the state of Alaska with Virgin America’s strong foundation in California will make Alaska Airlines the go-to airline for the more than 175,000 daily fliers in and out of Golden State airports, including San Francisco and Los Angeles. For Virgin America customers, service will expand in the thriving technology markets in Silicon Valley and Seattle. The combined airline will also offer more frequent connections to international airline partners departing Seattle, San Francisco and Los Angeles. In addition, this transaction will open up growth opportunities in important East Coast business markets by increasing Alaska Airlines’ access to slot-controlled airports like Ronald Reagan Washington National Airport and the two primary New York City-area airports, John F. Kennedy International Airport and LaGuardia Airport. “Our employees have worked hard to earn the deep loyalty of customers in the Pacific Northwest and Alaska, while the Virgin America team has done the same in California. Together we will continue to deliver what customers tell us they want: low fares, unmatched reliability and outstanding customer service,” said Brad Tilden, chairman and CEO of Alaska Air Group. “With our expanded network and strong presence in California, we’ll offer customers more attractive flight options for nonstop travel. We look forward to bringing together two incredible groups of employees to build on the successes they have achieved as standalone companies to make us an even stronger competitor nationally.” The combined organization will be based in Seattle under the leadership of Tilden and his senior leadership team. David Cush, Virgin America president and CEO said, “Our mission has always been to create an airline that people love – and we accomplished that while changing the industry for the better. Joining forces with Alaska Airlines will ensure that our mission lives on, and that the stronger, combined company will continue to be a great place to work and an airline that focuses on an outstanding travel experience.” “Today’s merger announcement of two great airlines coming together provides both pilot groups with an outstanding opportunity to benefit from the growth of the expanded Alaska Airlines’ route network,” said Captain Chris Notaro, chairman of the Alaska Airlines MEC of the Air Line Pilots Association. “We would like to welcome the professional pilots of Virgin America to the Alaska family and we look forward to a common goal of building a new joint pilot group that will benefit from a stronger and more prosperous airline that we have helped build.” “Alaska Airlines and Virgin America are both known for providing an exceptional in-flight experience, thanks in large part to the dedication of our respective flight attendants,” said Jeffrey Peterson, president of the Association of Flight Attendants-CWA Master Executive Council at Alaska Airlines. “The combination of these two award-winning airlines provides an exciting opportunity for our members and for the Virgin America flight attendants, or Inflight Team Members. We look forward to joining together and building on our legacies of customer satisfaction to the benefit of both companies’ passengers.” Following closing, Alaska Airlines will welcome Virgin America Elevate loyalty program members into its Mileage Plan, ranked #1 by U.S. News and World Report. With Alaska Airlines Mileage Plan, members are able to redeem award miles for travel to more than 900 destinations worldwide, rivaling global alliances. Until the transaction closes, both loyalty programs will remain distinct – with no short-term impact on members. Upon closing, the programs will be merged. Alaska Airlines is committed to ensuring that loyalty members of both airlines maintain the same high-value rewards they’ve come to enjoy in both programs – with access to an even larger network. BofA Merrill Lynch and UBS Investment Bank acted as lead financial advisors to Alaska Airlines on the transaction. Cowen & Company also acted as a financial advisor to the company. Evercore Group LLC acted as financial advisors to Virgin America. O’Melveny & Myers LLP acted as legal advisors to Alaska Airlines, and Latham & Watkins LLP acted as legal advisors to Virgin America. Alaska Airlines, together with its partner regional airlines, serves more than 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada, Costa Rica and Mexico. Alaska Airlines ranked “Highest in Customer Satisfaction Among Traditional Carriers” in the J.D. Power North American Airline Satisfaction Study for eight consecutive years from 2008 to 2015. Alaska Airlines’ Mileage Plan also ranked “Highest in Customer Satisfaction among Airline Loyalty/Rewards Programs” for the second year in a row in the J.D. Power 2015 Airline Loyalty/Rewards Program Satisfaction Report. Known for its mood-lit cabins, three beautifully designed classes of service and innovative fleetwide amenities — like touch-screen personal entertainment, WiFi and power outlets at every seat, Virgin America has earned a host of awards since launching in 2007 — including being named the “Best U.S. Airline” in Condé Nast Traveler’s Readers’ Choice Awards years and “Best Domestic Airline” in Travel + Leisure’s World’s Best Awards for the past eight consecutive years.]]>