An Early Indication Alaska is Overpaying for Virgin America (and Marriott for Starwood)

As of this writing United, American, and Delta shares are up so far early in the trading day.

With Alaska’s announced purchase of Virgin America for $2.6 billion, a roughly 90% premium over the airline’s market value just two weeks ago, there was an immediate reception to the deal at the New York Stock Exchange.

Markets still aren’t loving Marriott’s purchase of Starwood, either.

While it’s usually a mistake to ascribe specific causes to daily — let alone intra-day — movements in share price, the changes are dramatic and linked directly in time to major news. And in Alaska’s case they run in direct contrast to the direction of the market this morning for the airline’s competitors.

Mergers rarely generate the benefits that are promised when they’re announced and costs are often greater than expected.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Wow, between these two transactions the travel blogger community is getting a ton of “content.” Can we expect multiple updates per day until the transactions close?

  2. You have no idea what you are talking about. It is quite common and quite expected that the stock of an acquiring company opens down. The market reaction to this merger will be measured in months, not days.

    Are you competing with Ben on who can post more misinformation?

  3. @Mark, his blog, his content. You don’t have to read it (or pay for it for that matter). C’ya.

  4. Gary, for someone who suggests they have business/financial accumen you lose credibility with posts like these. Take your emotion and personal interest for more CCs to hawk out of it and try to understand the big picture here and the reality that these are publicly traded companies ultimately acting in the best interest of shareholders-particularly large institutional shareholder.

  5. Ah here comes the vigilantes taking a few minutes off from their busy day at the trading floor on the NYSE to protect travel readers from VFTW’s financial advice. Thanks. Cause this blog is where I get my investment advice from.

  6. the bloggers are absolutely hating it since 2 of their abuse darlings, AS and SPG, will grow much larger and much less favorable to the gamers, including fewer credit card referral links they can sell you

  7. @Josh G – I’m simply questioning that assumption, do you disagree that in bidding situations the winner often loses? Remove your own biases here, clearly clouded by factually incorrect statements like “more CCs to hawk” (which one of us is focusing on small ball? I do not have a personal interest in financial products issued by either Virgin America or Alaska Airlines)

  8. @Dom Alaska paid ~ 127% of Virgin America’s value as of 2 weeks ago. They paid 30% more than it was speculated at the end of the week they’d have to in order to get the deal done. Did you listen to the investor call? Alaska wouldn’t (couldn’t) justify the cost, simply saying they prefer to focus on benefits and their ability to pay. That’s telling.

  9. It’s clear Alaska overpaid for Virgin America. They paid a ridiculous premium. Given where the share price was, shareholders would’ve gained with a buyout at $45 and probably would’ve taken $45. Maybe JetBlue drove up the price, though?

  10. I suggest that the critics here credit not Mr. Leff, but instead respect what the investors who have skin in the game are doing – it certainly appears that, among buy, hold and sell, their immediate reaction is to sell. I just cannot think who to trust more.

  11. At that level of business and high finance you’d think they’d at least spell correctly in their announcement email to Mileage Plan members: “With complimentary [sic] West Coast-based networks…”

  12. JBLU stock is down 4% today too. What’s up with that? Did JetBlue’s investors really want to pay $2.6B for VX?

  13. Neither AS or VX issue credit cards or “financial products”, the two offerings are issued by Bank of America and Comenity Capital Bank, respectively. And again, a ~5% drop of the aquirer in this type of a transaction isn’t atypical or significant. A sell slide analyst UPGRADED and RAISED target price for ALK this morning.

  14. @Josh G,

    What you say is very interesting. And if you are so confident, might I suggest that you buy every call option available before everyone else becomes as smart as you?

  15. You’ve had good coverage of the deal, however, this is silly. Look at a longer chart: Have you literally never heard the old saying: “buy the rumor, sell the news”

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