The FINANCIAL — AirTran Holdings, Inc. (NYSE: AAI), the parent company of AirTran Airways, announced on September 27 that it has entered into a definitive merger agreement to be acquired by Southwest Airlines (NYSE: LUV) in a transaction currently valued at more than $1.37 billion.
Including existing AirTran Holdings, Inc., indebtedness and capitalized aircraft operating leases, the aggregate transaction value is approximately $3.42 billion.
"Under the terms of the agreement, shareholders of AirTran Holdings, Inc., will receive a combination of Southwest common stock and cash valued between $7.25 and $7.75, depending upon the average trading price of Southwest stock for a 20 trading day period to and including three trading days prior to the closing of the merger. At least $3.75 of the merger consideration will be in cash. The stock portion of the consideration will be 0.321 shares of Southwest common stock for each share of AirTran common stock, unless the trading price of Southwest common stock would cause the overall merger consideration to exceed $7.75 per share (in which case the number of Southwest shares will be decreased so that the consideration equals $7.75 per AirTran share) or would cause the overall merger consideration to be less than $7.25 per share (in which case additional cash, Southwest shares or a combination of the two will be added so that the consideration equals $7.25 per share)," AirTran Airways informs.
Based on Southwest Airlines' closing share price as of September 24, 2010, the value of the merger consideration would be $7.69 per AirTran share. This represents a 69 percent premium over the September 24, 2010, closing price of AirTran stock.
The acquisition of AirTran Airways by Southwest Airlines will bring together two great companies and create one even stronger low-cost carrier. The two airlines currently serve 106 communities from coast-to-coast, Mexico and the Caribbean, with 685 all-Boeing aircraft and nearly 43,000 dedicated, fun-loving Employees.
"This agreement is great news for our Crew Members, our shareholders, our customers and the communities we serve. Joining Southwest Airlines will give us opportunities to grow, both professionally as individuals and as a group, in ways that simply would not be possible without this agreement," said Bob Fornaro, AirTran Airways' chairman, president and chief executive officer. "This agreement with Southwest is a testament to the success and hard work of the more than 8,000 AirTran Crew Members who have built this airline. I am tremendously proud of the things we have accomplished together and look forward to continuing that great work during this next exciting chapter of our history."
The combined airline will benefit from greater economies of scale and the integration of operations will be aided by significant fleet commonality. The result is an airline that is better prepared to meet the challenges of an increasingly competitive airline environment and take advantage of strategic opportunities better than ever before.
"Both companies have dedicated people with kindred Warrior Spirits, who care about each other, and who care about serving Customers. We will continue to enhance our award-winning Customer experiences and high-quality operations," said Gary Kelly, Southwest Airlines' chairman, president, and chief executive officer. "We believe this deal can benefit all Stakeholders through an expansion of low fares for Customers, opportunities for Employees of both companies and for suppliers and vendors, and favorable returns for Shareholders. Ultimately, we want to spread low fares farther and look forward to working together with AirTran's Crew Members to realize the new opportunities we expect to achieve from this deal."
The AirTran Board of Directors, on the unanimous recommendation of a Special Committee of independent directors, approved the merger agreement and recommends that AirTran Holdings, Inc., shareholders approve the transaction.
Completion of the transaction, which will require both regulatory and shareholder approvals, is expected to close by the first half of 2011. Commercial and operating integration is slated to culminate in 2012, with both carriers operating under Southwest Airlines' Federal Aviation Administration operating certificate in Dallas.
Morgan Stanley acted as lead financial advisor to AirTran Holdings, Inc., with both Sullivan & Cromwell, LLP, and Smith, Gambrell & Russell, LLP, acting jointly as legal advisors.