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Alaska Air Is Officially Buying Virgin America

Alaska Air Group said on Monday it had agreed to buy Virgin America for $2.6 billion to expand its flights on the U.S. West Coast.

Alaska Air said in a news release that the merged airline will become the fifth largest in the United States and will help it compete against larger rivals for lucrative business and international travelers visiting San Francisco and Los Angeles as well as Seattle, where the company is based.

The acquisition will herald the first U.S. commercial airline merger since US Airways and American Airlines combined in 2013 to form the world’s largest carrier.

Alaska’s offer of $57 per share in cash represents a premium of about 47% to Virgin’s Friday’s close. Including Virgin America’s debt and aircraft lease obligations, the transaction value amounts to about $4 billion, according to the release.

The deal will generate $225 million in annual benefit once the companies are fully merged, while one-time integration costs are expected to be between $300 million and $350 million, Alaska Air said.