Alaska Air Group, parent company of Alaska Airlines, announced plans Monday to acquire Virgin America in a deal the company valued at $57 a share in cash. Including debt, Alaska Air valued the deal at about $4 billion.
Alaska Air said 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.
"Their network perfectly complements Alaska. We're very strong in Seattle, Portland, Anchorage. We have good strength in California, but they're extraordinarily strong in California," Alaska Airlines CEO Brad Tilden told CNBC's "Squawk Box."
"We think together … we will be the airline on the West Coast with the largest market share, and so we think the deal just makes all the sense in the world."
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 percent to Virgin's Friday's close.
Shares of Virgin America soared more than 39 percent in premarket trading on the report. (Get the latest quote here.) Alaska Air's stock was down 6 percent.
The deal, which has been approved unanimously by both company's boards, offers $225 million total net synergies annually at full integration, the companies said.
Alaska Airlines beat out a rival bid by Jetblue, and while both carriers were qualified buyers, the choice came down to price and meeting Virgin's fiduciary duty to its investors, CEO David Cush told "Squawk Box."
"We thought the Alaska plan was a very good plan. It was about establishing a powerhouse on the West Coast that would have strong presences in Seattle, San Francisco, and L.A., so we liked that. And very simply they came in with a very strong offer," he said on Monday.
Kush said he would work with Alaska Airlines through the integration and step down immediately after the deal closes.
The Alaska Airlines moniker will remain, Tilden said. His company will work with the Virgin team to understand its brand, he added, noting that the company had done well in attracting and retaining new customers.
The transaction is expected to be accretive to adjusted earnings per share in the first full year, and will increase annual revenue by 27 percent to more than $7 billion.
One-time integration costs are expected to be $300 million to $350 million.
The combined organization will be based in Seattle.
Evercore Group acted as financial advisors to Virgin America, while Bank of America/Merrill Lynch and UBS investment bank acted as lead financial advisors to Alaska Air.
— Reuters contributed to this report.