Alaska Air Group Inc (NYSE: ALK) has announced its acquisition of Hawaiian Holdings Inc (Nasdaq: HA) for $1.9 billion, including debt, in a bid to capitalize on the lucrative routes of the troubled Hawaiian airline.
The deal, amounting to $18 per share in cash, amounts to a premium of nearly four times Hawaiian’s closing price on Friday. Hawaiian has seen a 65% drop in share prices over the past year, coming from the Maui wildfires, high fuel costs, and jet engine recall issues.
The acquisition is poised to attract regulatory scrutiny, mirroring the ongoing challenges faced by JetBlue Airways Corp in its proposed acquisition of Spirit Airlines Inc. Despite these challenges, Alaska Air CEO Ben Minicucci expressed confidence in regulatory approval by the end of 2024, citing minimal overlap in the flights, specifically 12 in 1,400, collectively operated by the two airlines.
The acquisition positions Alaska Air, valued at $5.1 billion, to gain control of over 50% of the market for Hawaii flights, a popular tourist destination. Minicucci emphasized the enduring appeal of Hawaii for vacations, weddings, and anniversaries, projecting sustained strength in the market for years to come.
Defending the 270% premium offer, Alaska Air highlighted the deal’s value proposition, pricing Hawaiian at 0.7 times its annual revenue, well below the industry average of 1.7 times. The company anticipates annual savings of at least $235 million.
The deal is expected to yield high single-digit earnings gains for Alaska Airlines within an initial two years, with no substantial impact on long-term balance sheet metrics. The combined company, headquartered in Seattle under Minicucci’s leadership, will operate a mixed fleet, and Honolulu will emerge as a key hub for Alaska Airlines.
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