This Is INSANE: Alaska To Buy Virgin America For *$2.5 Billion*

Delta paying $360 million for 49% of Virgin Atlantic seems like a bargain in comparison. Virgin America made $177 million last year probably due to low oil prices. If oil goes back to more normal prices the premium Alaska paid to buy them is mind boggling.

Appreciate the pretty early comment on this, took some May options on VA last week. Will at least pay for next vacation I trust, maybe along with a new car.

@M Simons:

Jealous! I wish I could trade options (it's prohibited - I work in the industry...)

Enjoy your new car!

So now Ben is also a stock analyst and an investment banker, all without a lick of financial training or experience. What's next? Self-taught astronaut?

At that price, it is bad news, I now agree!

Only way it makes sense if it's on it's way to a trifecta merger with Jet Blue.

AA and UAL are valued at roughly 3-4 times earnings, Delta is valued at 8 times earnings... This deal is valued at 5.5 times earnings, Ben (or anyone) can you support your statement on that AS is overpaying?

The angle many are not bringing up is perhaps it is a shield to a hostile take over bid? Not sure but there seems to be so many reasons that we may not have visibility into.

Just curious as to what credentials makes you an airline financial expert?

Sounds like Alaska is convinced that the small players are going to be left behind.
@beachfan - interesting comment. It does seem that both Alaska and JetBlue wanted scale to compete with the big guys. Combined all 3 would still be half the size of United which was #4 in 2015.

@Samuel How are you getting 5.5x earnings? Wasn't VX's operating income in 2015 around $200M (with record low oil prices) and less than $100M in 2014? So assuming a median of $150M, that's something like 17x earnings.

What Corp valuation technique did you use to determine it's overpriced?

It's *extremely* difficult to determine the value of a company, as many people disagree on the proper way to do so. With that said - Ben, how do you figure that this is "way overpaying" ? What do you value Virgin at, and how did you come up with that number?

Announced in press release at 3am PT today. Deal is done. $2.6b in cash, closing Jan 2017.

So Ben is now an investment banker? That just gave me the giggles.

including debt it's 4 billion...

@Dom I am not complaining at all bought some Virgin America stock this past week. And now pre market this morning it is already 54 a share. It doesn't take an investment banker to understand that Alaska way overpaid for this stock and I am making about a 70-80 percent return in one week. @Keith it's called market cap. That's the number of the shares outstanding times the stock price. Yes it is speculative but to go almost twice the market cap is crazy. But here is the bottom line with that. After the buzz of the merger Virgin America already saw an increase in stock price to get the market cap close to 1.5 billion that means all of the shares total 1.5 billion in value. Alaskan over paid 1 billion on this deal. That's how he is coming up with these numbers. @ Samuel yours has already been addressed as this deal is not 5.5 times earnings but closer to 15-20. Plus think about how to cost of fuel has benefited the airlines...you can't just look at the last year or 1/4 and make valuations off that. @M Simons if you played those options right forget a car you could get a house or retire. I am kind of mad I bought the stock rather than the options but I never thought Alaska would pay that much for the Virgin America.

It does not take a financial analyst to look up Market Cap and understand its meaning. The fact is Alaska Airlines is paying a huge premium above the Market Cap for this stock...way more than is customary. Based off the pre-market this morning those May options M Simons purchased are going to be worth a fortune.

@JF "including debt it’s 4 billion…" That's not how it works. Price + acquired debt does not equal total cost. Virgin also as nearly 500 million in Cash. Also they have something called "Assets" which is those planes they fly around (even leased planes have value in fact. With today's Captial leases (which I don't know if virgin uses) the leased planes go on the book aa assets. The payments on these leased are classified as long term debt.

Not a fortune, just a car's worth. Only risk what you can lose. As of this morning, got 7X or better initial investment.
Yes wish had more, but that's when it goes south.

I'm curious that Alaska isn't concerned about SFO tanking Alaska Airline's on-time performance.

Going back to Alaska ifor a wedding. I will be stuffed in an AKAir seat. Sardines have more room in the darned can than in AKAir seats. Circumstances did not allow me to research other modes of travel. There must be a way to travel by air and, if not comfortable, at least make it bearable. Some airline that doesn't for some poor 6 foot guy behind me to sit with his knees in my kidneys.

There is no excuse for commercial airlines to reduce passengers to cargo status. Next time - I'll drive. The AlCan is gorgeous,
and my Subaru is comfy
and I can take my dog without subjecting him to sub-cargo status
and I can stop and eat where I want
and I don't have to eat plastic food
and I don't have to deal with crabby flight attendants.

I'll bet the CEO doesn't travel like that. Let's take some of his money and give everyone at least 6 more inches knee room (3 inches?). Alaska's outlay on Virgin Air was inappropriate given that Alaska won't even do the right thing for the planes (and customers) it already has.

Oh, and now the mileage required has gone up? Unimpressed, Marthalynne Webb, former frequent flyer of many airlines since 1960.