Alaska Air Group, the parent of Alaska Airlines, said on Monday that it had agreed to acquire Virgin America for $ 2.6 billion in cash.
The deal would unite two domestic carriers that are among the 10 largest in the United States, but that operate in a tier below the industry giants, American Airlines, Delta Air Lines and United Airlines. It would also expand Alaska Airlines' presence in the lucrative California market, particularly in San Francisco and in Los Angeles, one of Alaska Airlines' hubs.
The transaction would be the latest tie-up in an industry that has rapidly consolidated over the past decade, concentrating power in the United States air travel market among a few major carriers.
The agreement followed a bidding process that saw Alaska Air and JetBlue Airways square off, but Alaska Air, one of the rare airlines to hold an investment-grade credit rating, ultimately triumphed.
Under the terms of the transaction, Alaska Air will pay $ 57 a share in cash for Virgin America, representing a 47 percent premium to the target company's closing price on Friday.
"With our expanded network and strong presence in California, we'll offer customers more attractive flight options for nonstop travel," Brad Tilden, the Alaska Air chairman and chief executive, said in a news release. "We look forward to bringing together two incredible groups of employees to build on the successes they have achieved as stand-alone companies to make us an even stronger competitor nationally."
Including debt and aircraft operating leases, the deal would be worth as much as $ 4 billion, Alaska Air said.
News of the potential merger emerged over the weekend.
The transaction has been unanimously approved by the boards of directors of both companies and is subject to approval by regulators and by Virgin America's shareholders. The merger is expected to be completed by the beginning of next year.
The potential sale of Virgin America comes less than two years after it went public and nearly a decade after it was founded in 2007.
The airline was the brainchild of Richard Branson, the British billionaire behind an empire of brands that share the Virgin name.
The idea was to create a new, lower-cost carrier with a higher level of service than that provided by traditional airlines.
Virgin America, based in the San Francisco area, has a fleet of about 60 single-aisle Airbus planes that fly to 23 airports in the United States and Mexico. The carrier outfits its planes with mood lighting, Wi-Fi and interactive video displays.
The airline has developed a devoted fan base, in part because of a quirky sense of humor in its marketing. For example, the airline produced a safety video in 2013 that included choreographed singing and dancing.
Virgin America, which went public in November 2014, was valued at $ 1.5 billion as of Friday's market close. Mr. Branson owns about 31 percent of the airline, with the hedge fund Cyrus Capital Partners owning 24 percent.
The deal is expected to draw close scrutiny from regulators in the United States, who have concerns that further consolidation in the industry could result in higher prices for consumers.
The Justice Department sued to block American Airlines' takeover of US Airways in 2013, but it ultimately dropped its antitrust lawsuit after the airlines agreed to give up landing spots at some of the country's largest airports, including La Guardia in New York, O'Hare International in Chicago and Ronald Reagan National in Washington.
The transaction would allow Alaska Air, which also owns Horizon Air, to leapfrog JetBlue and became the fifth-biggest carrier in the United States.
Alaska Air, which is based in Seattle, has steadily moved to expand its network beyond the West Coast, pushing into transcontinental flights as well as those to Hawaii. Its two carriers, Alaska Airlines and Horizon, offer flights to more than 90 destinations in Canada, Mexico and the United States.
The companies said that they expected to achieve $ 225 million in annual cost savings following the merger, after incurring one-time integration costs of $ 300 million to $ 350 million. The combined airline would have annual revenue of more than $ 7 billion, the companies said.
Alaska Air was advised by Bank of America Merrill Lynch, UBS and Cowen & Company and by the law firm O'Melveny & Myers, while Virgin America was advised by Evercore and by the law firm Latham & Watkins.
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