28-Sep-2010 12:01 PM

Southwest Airlines to acquire AirTran for USD3.4bn

Southwest Airlines announced (27-Sep-2010) it has entered into a definitive agreement to acquire all of the outstanding common stock of AirTran Holdings, the parent company of AirTran Airways, for a combination of cash and Southwest Airlines' common stock. At Southwest Airlines' closing stock price of USD12.28 on 24-Sep-2010, the transaction values AirTran common stock at USD7.69 per share, or approximately USD1.4 billion in the aggregate, including AirTran's outstanding convertible notes. This represents a premium of 69% over the 24-Sep-2010 closing price of AirTran stock. Under the agreement, each share of AirTran common stock will be exchanged for USD3.75 in cash and 0.321 shares of Southwest Airlines' common stock, subject to certain adjustments, based on Southwest Airlines' share price prior to closing. Including the existing AirTran net indebtedness and capitalised aircraft operating leases, the transaction value is approximately USD3.4 billion.

Completion of the transaction, which will require both regulatory and shareholder approvals, is expected to close by 1H2011. Commercial and operating integration is slated to culminate in 2012, with both carriers operating under Southwest Airlines' Federal Aviation Administration operating certificate in Dallas. Until the acquisition is approved and finalised, both carriers will continue to operate independently. [more - Southwest] [more - AirTran] [more - SEC Filing] [more - SEC Presentation] [more - SEC Merger Documents]

International Brotherhood of Teamsters announced (27-Sep-2010) it is assembling an experienced team of experts to ensure its members' jobs and interests are protected should the proposed merger of Southwest Airlines and AirTran Airways be approved by federal regulators and shareholders. The Teamsters represent 430 mechanics and related workers at AirTran and 22 flight simulators and 165 stock clerks at Southwest. Southwest Airlines Pilots' Association (SWAPA) stated it will continue preparations for an intense period of change for both the Company and the union. As part of this airline acquisition, SWAPA's primary interests will be to negotiate a transition agreement with Southwest Airlines and to incorporate pilots from the AirTran seniority list onto the Southwest Airlines seniority list. [more - Teamsters] [more - SWAPA]

Fitch Ratings affirmed (27-Sep-2010) the debt ratings of Southwest Airlines following the carrier's plans to acquire AirTran Holdings. Fitch has affirmed the following:

  • Issuer Default Rating (IDR) at BBB;
  • Senior Unsecured Debt at BBB;
  • USD600 million Unsecured Revolving Credit Facility expiring 2012 at BBB;
  • Secured Term Loans due 2019 and 2020 at BBB+.

The Rating Outlook for LUV is "stable". Fitch's ratings apply to approximately USD2.5 billion of outstanding notes and loans. [more - Fitch]

Meanwhile, Bernstein Liebhard LLP, Faruqi & Faruqi, Levi & Korsinsky, Briscoe Law Firm and Kendall Law Group announced (27-Sep-2010) it is investigating whether the Board of Directors of AirTran Holdings breached its fiduciary duty to its shareholders in agreeing to sell AirTran to Southwest Airlines. [more - Bernstein] [more - Faruqi & Faruqi] [more - Levi & Korsinsky] [more - Kendall Law Group] [more - Briscoe Law Firm]

Southwest: "This acquisition creates more jobs and career opportunities for our combined employee groups, as a whole. It allows us to better respond to the economic and competitive challenges of our industry, and fits perfectly within our strategy for our fifth decade of service. It offers customers more low-fare destinations as we extend our network and diversify into new markets, including significant opportunities to and from Atlanta, the busiest airport in the US and the largest domestic market we do not serve, as well as Washington DC via Ronald Reagan National Airport. The acquisition also allows us to expand our presence in key markets, like New York LaGuardia, Boston Logan and Baltimore/Washington. It presents us the opportunity to extend our service to many smaller domestic cities that we don't serve today, and provides access to key near-international leisure markets in the Caribbean and Mexico. Finally, this accelerates our goal to boost profits and achieve our financial targets." Gary C Kelly, Chairman, President, and CEO of Southwest Airlines. Source: Company statement.

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