It took a protracted bidding war for Alaska Air Group to win the auction for Virgin America. Also: Amazon.com will launch same-day Prime delivery service in a previously excluded African-American Boston neighborhood; and exec jumps from SurveyMonkey to PicMonkey.
It took a protracted bidding war for Alaska Air Group to win the early April auction for Virgin America, a blow-by-blow account from Virgin reveals.
The hustling was triggered last fall when another airline, which remains unidentified, first approached Virgin to discuss the possibility of a merger.
When it was all over, Alaska had raised its bid four times, ultimately offering $57 per share, or $2.6 billion, for a company whose stock had traded as low as $27 in mid-February.
While JetBlue is identified only as Company A in the document, its Chief Executive Robin Hayes publicly acknowledged in a quarterly-earnings call this week that the New York-based airline was the rival bidder that bowed out at the end.
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Hayes described the deal as “a nice-to-have rather than a must-have” and told investors that “the price reached a level where it became clear our strategic plan for organic growth offered a better path.”
Virgin’s preliminary proxy, filed with the Securities and Exchange Commission (SEC), says that starting last fall, altogether four airlines expressed some interest in acquiring Virgin, but only Alaska and JetBlue submitted formal bids.
Brad Tilden, chief executive of Alaska Air Group — parent company of carrier Alaska Airlines and its Horizon regional carrier subsidiary — contacted Virgin board chairman Don Carty to express his interest for the first time in late November.
Tilden met with Carty on Dec. 4 and continued discussions in the ensuing weeks.
By then, though, the consulting firm advising Virgin had identified JetBlue as a likely suitor and on Dec. 14, Virgin CEO David Cush had dinner with JetBlue CEO Hayes to discuss the possibility.
On Dec. 17, Tilden submitted Alaska’s initial offer of $44.75 per share. Virgin stock at the time was trading around $36 per share.
In January, another unidentified airline expressed potential interest, and Virgin’s financial advisers held meetings to encourage all four suitors to submit bids. That month, Cush had another dinner with Hayes.
Soon after, Virgin’s outside aviation consultants concluded there would be more cost and revenue synergies from a merger with JetBlue than with Alaska, suggesting JetBlue would be motivated to pay more.
In early February, JetBlue made its initial offer to Virgin of $43 per share.
Four days later, with Virgin stock having sunk below $28 in a general market decline, Alaska’s bankers — apparently unaware of the JetBlue bid — advised Virgin that Alaska might no longer be willing to offer $44.75 and asked if a lower price would be acceptable.
After further back and forth dialogue, revised proposals were called for. Alaska bid $45 per share on Feb. 29, and JetBlue trumped that by a dollar two days later.
Virgin asked for final offers and for two weeks beginning March 7 it provided access to due-diligence materials in an electronic data room to representatives of both Alaska and JetBlue.
While that was going on, on March 23, word leaked to the media that a sale was in process. Virgin’s stock quickly climbed to above $38 per share. On March 31, Alaska increased its offer to $48 per share; JetBlue countered with $50.
The next day, Alaska upped its offer again, to $53.50, and JetBlue then submitted a “best and final offer” of $55 per share. Virgin’s financial advisers invited Alaska to beat that, informing the carrier that an offer of $57 per share would likely close the deal.
Alaska agreed, on condition that a definitive merger agreement be signed that evening.
With that, it was done. Alaska still needs approval by Virgin’s stockholders, which is expected in June, and then antitrust clearance from Department of Justice regulators, which is less certain.
The document estimates that Virgin America CEO Cush will walk away with $24 million in cash and stock if the merger is finalized. The hedge fund Cyrus Capital Partners, Virgin’s largest voting shareholder, will get an estimated $600 million.
British billionaire Richard Branson’s Virgin Group Holdings, which owns about 36 percent of the airline’s shares (though because of limitations on foreign control it owns just shy of 25 percent of the voting shares) will get an estimated $784 million.
Meanwhile, in an extensive interview published Monday on the Cranky Flier airline blog, Alaska chief commercial officer Andrew Harrison outlined why the deal made sense to him.
Harrison said that Alaska wants to significantly expand its presence in California, and doing so through normal organic growth would have taken years and huge investment.
He noted that for Virgin, that meant years of unprofitable operation since it was founded in 2007. It made money last year for the first time, thanks to the boost from the plunge in the price of jet fuel.
“Virgin America has basically lost money nearly every year they’ve been operating other than the last year,” Harrison said. “It’s taken a huge toll on them to invest, to build up, to win customer loyalty, to get space, to get customers, to build up significant markets.”
By purchasing this now- established and popular little airline and combining it with Alaska’s strength, Harrison said “the value of what we believe we can do with this new foundation going forward is massive. Massive.”
— Dominic Gates: firstname.lastname@example.org
Criticism alters Amazon’s service
Facing backlash from local elected officials, Amazon.com says it will soon launch same-day delivery service for Prime members in a predominantly African-American Boston neighborhood that was excluded while it served surrounding areas.
The move came after Boston Mayor Martin Walsh last week lambasted the company for making the Roxbury neighborhood “a hole right in the heart of our city” in terms of same-day delivery.
The controversy was sparked by a Bloomberg News investigation that highlighted how Amazon’s same-day delivery service was unavailable in some minority neighborhoods in six big cities.
In Boston, Roxbury stood out because it’s fairly central, right in the middle of areas where same-day delivery happened.
Amazon contended that as it deployed the service it focused on places with a high density of Prime members and considered other data such as distance from fulfillment centers. The company also says it factors in whether the logistics providers it contracts with are able to deliver packages up to 9 p.m. “every single day, even Sunday.”
Amazon said race plays no role in setting service boundaries.
In a statement released by Boston City Hall on Tuesday, the mayor complained that Amazon executives were “not willing to change their policy.”
“We understand that the people who run Amazon don’t live here and might not understand our great neighborhoods, but this is an egregious mistake that must be changed,” the mayor said.
After the mayor’s statements, Amazon said it is “actively working with our local carrier to enable service to the Roxbury neighborhood in coming weeks.”
“We are always looking to expand the benefits our Prime members receive and that’s exactly what we’re doing,” Amazon said.
Elected officials in New York City and Chicago, meanwhile, have called for state and federal investigations examining how the company determines which neighborhoods are eligible for quick delivery of goods.
— Ángel González: email@example.com
Jumping from SurveyMonkey to PicMonkey
Former SurveyMonkey executive Brent Chudoba has joined a tech startup with a similar name, though a different service, in Seattle.
Chudoba will serve as PicMonkey’s chief operating officer, the company announced, joining a growing list of tech leaders that Seattle has snagged from San Francisco.
Chudoba worked at Palo Alto, Calif.-based survey company SurveyMonkey since 2009, most recently as chief revenue officer. He said he was ready to jump back into the startup world after watching SurveyMonkey grow from a couple dozen employees to several hundred.
PicMonkey, a 40-person company that offers online photo-editing services, raised a $41 million round led by private equity firm Spectrum Equity last July. Chudoba, who used to work at Spectrum, will help “take the company from point A to point B,” said PicMonkey co-founder and CEO Jonathan Sposato.
He’ll also help inject some Silicon Valley experience into the company, Sposato said.
If it seems as if more and more techies are making the move from California’s booming tech center to Seattle’s smaller, but rapidly growing, community, it may not just be your imagination. Hiring firm Indeed.com released a report suggesting Seattle companies are having an easier time filling jobs because more people are flocking to the city.
Chudoba is seeing the trend as well.
“(Silicon Valley) has become really crowded,” he said. “It’s very hard to stick out … it has a high cost of living and is very cutthroat. I think that pressure builds, and I think it means the Pacific Northwest has benefitted.”
Many founders and executives feel they will have better luck finding talented employees in Seattle, where, although the market is competitive, it is not nearly as packed as Silicon Valley and San Francisco.
“Seattle is still genteel, it’s still friction-free,” said Sposato, who is also co-founder and chairman of tech news site Geekwire.
— Rachel Lerman: firstname.lastname@example.org