Alaska Air deal to acquire Hawaiian Airlines for a huge premium

By Mike Murphy

Alaska is paying $18 a share for Hawaiian, or a 270% premium over its closing price Friday

Alaska Air Group Inc. announced a deal Sunday to buy Hawaiian Airlines for about $1.9 billion, sending the stock soaring early Monday.

Under the terms of the deal, Alaska Air will pay $18 a share in cash, while taking on about $900 million in Hawaiian's net debt, for a total equity value of roughly $1 billion. The price is equal to a 270% premium over Hawaiian's closing price Friday at $4.86.

Hawaiian's stock soared 189.5% premarket on the news, while Alaska was down 11.9%. That puts Hawaiian on track for its biggest ever one-day gain.

In a statement, Alaska said the deal will grow the country's fifth-largest airline to a combined fleet of 365 airplanes with 138 destination cities, with a combined 54.7 million annual passengers. The airline said Honolulu will become a key hub, with expanded service between Hawaii and the mainland U.S., and create new connections for flights to and from Asia.

Both brands will be retained, with the combined company's headquarters based in Seattle. Alaska said the two airlines shares complimentary domestic, international and cargo networks.

Alaska said it would maintain a strong presence in Hawaii, including expanding union-represented jobs and local investments.

"This combination is an exciting next step in our collective journey to provide a better travel experience for our guests and expand options for West Coast and Hawaii travelers," Alaska Airlines Chief Executive Ben Minicucci said in a statement.

The boards of both companies have approved the acquisition, which is pending regulatory approval and approval from Hawaiian's shareholders. Alaska said the deal is expected to close in the next 12-18 months.

The move is the latest consolidation in the airline industry. JetBlue Airways (JBLU) is currently in the process of buying budget carrier Spirit Airlines (SAVE) for $3.8 billion, a deal that the Justice Department is opposing on antitrust grounds.

Raymond James downgraded Alaska's stock on the news.

"Admittedly, with the acquisition unlikely to close for 12-18 months, the earnings recovery outlook that supported our prior view is intact, with the only likely change a delay in resuming a dividend," analyst Savanthi Syth wrote in a note to clients.

"Moreover, we believe this acquisition makes sense longer term and Alaska has the balance sheet and earnings strength to see it through. However, given the current macro uncertainty, the complexity of executing the merger should weigh on sentiment and likely limits the near- to medium-term upside case," she wrote.

Alaska Air shares (ALK) are down about 7% year to date, while Hawaiian stock (HA) has sunk 53% in 2023.

-Mike Murphy

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12-04-23 0731ET

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