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Icelandair has agreed to acquire ultra-low-cost carrier WOW Air.
WOW Air shareholders are set to receive to 5.4% of Icelandair value at $18 million to $25 million.
The deal is still subject to approval from Icelandair Group's investors, Icelandic antitrust authorities, and due diligence.
Since its founding in 2011, WOW Air has fought Icelandair, the country's flag carrier, for business to the island nation. That competition has officially come to a close. On Monday, Icelandair announced that it has agreed to acquire the up-start Icelandic ultra-low-cost carrier.
"Icelandair Group has entered into a share purchase agreement to purchase all shares of airline WOW air," the carrier said in a statement.
In the deal, WOW Air's shareholders will receive a 5.4% stake in Icelandair. Reuters values the deal at $18 million. However, Bloomberg reports the WOW Air deal to be worth be around $25 million, based on a $455 million valuation of Icelandair. WOW Air's shareholders will be barred from selling any newly received Icelandair stock for six months with half of the shares subjects to an additional six-month moratorium.
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"WOW Air has in recent years built a strong brand and enjoyed great success in the company‘s markets to and from Iceland and across the Atlantic," Icelandair Group interim president and CEO Bogi Nils Bogason said in a statement. "There are many opportunities for synergies with the two companies but they will continue to operate under their own brands and operating approvals."
Led by founder and CEO Skuli Mogensen, WOW Air has become well-known among value-conscious traveler for its rock-bottoms and flashy fuschia jets.
The seven-year-old airline made headlines over the past couple of years with sales featuring $55 and $70 trans-Atlantic flights.
"I am very proud of the success and development that we at WOW Air have enjoyed in the past few years and I am thankful for the response we have received since our very first flight," Mogensen said in a statement. "We have created a strong team that has reached remarkable success and has been a pioneer in low-cost flights across the North Atlantic."
However, in an internal email obtained by Bloomberg, Mogensen explained to his employees that part of his rationale for selling to Icelandair was due to the tough market conditions.
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Both Icelandic airlines had been struggling this year due to high fuel prices, a slowdown in tourism to Iceland, and increased low-cost competition. With the acquisition of WOW Air, the merged company would hold 3.8% of the trans-Atlantic market. However, the airlines will continue to operate as separate brands.
Icelandair operates a fleet of Boeing 737, 757, and 767 aircraft while WOW Air flies only Airbus A320 family and A330 family jets.
Icelandair's acquisition of WOW Air is still subject to approval from Icelandair Group's investors, Icelandic anti-trust authorities, and due diligence. SEE ALSO: We flew on the longest flight in the world in both business class and premium economy to see how they compare — here's what we discovered
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