Southwest Airlines to acquire rival AirTran for $1.4 bn

Southwest Airlines, the largest low-cost carrier in the US, said yesterday that it has agreed to buy rival AirTran Airways for approximately $1.4 billion, in another move of consolidation in the global airline industry.

Through the cash-and- stock deal, Southwest will expand its route network to Atlanta, the busiest airport in the US, which it currently does not serve, and add other key markets including New York LaGuardia and Boston Logan, as well as the Caribbean and Mexico.

Under the terms, Southwest will pay $3.75 in cash and 0.321 shares of Southwest for each outstanding share of AirTran, based on a closing stock price of $12.28 for Southwest on 24 September 2010, and valuing AirTran stock at $7.69 per share, a statement said.

The offer price represents a 69-per cent premium to AirTran stock price on 24 September, and values the company at approximately $1.4 billion including AirTran's outstanding convertible notes.

Together with the existing AirTran net debt and capitalized aircraft operating leases, the transaction value is around $3.4 billion.

The acquisition trails Southwest's abortive attempt a year ago to buy the bankrupt carrier Frontier Airlines, which was later acquired by rival Republic Airways Holdings.