Stock traders spent much of Monday investing in Hawaiian Airlines’ pending sale to Alaska Airlines, sending shares of Hawaiian Airlines’ parent company up 193%.
Hawaiian Holdings shares closed Monday at $14.22, up from $4.86 on Friday, before leaders of both companies announced the deal on Sunday.
Monday’s volume soared to 35.4 million shares, but typical daily volume these days has been around 2 million or 3 million shares.
However, Monday’s closing price was well below the agreed purchase price of $18 per share. Alaska Air Group plans to make a cash payment to Hawaiian Holdings shareholders approximately 12 to 18 months from now, subject to regulatory and shareholder approval. .
Typically, in such acquisition transactions, the stock price of the acquired company increases to near the purchase price unless there is significant uncertainty as to whether the transaction will occur or the price will change.
Bloomberg News reported Monday that some stock analysts believe traders may be worried the deal won’t clear regulatory hurdles.
Leaders of both airlines indicated in a presentation to stock analysts on Sunday that they do not expect anticompetitive issues to get in the way of regulatory approval. The main reason for this is that the two airlines operate approximately 1,300 flights each day, resulting in 12 overlapping routes.
“From a competitive standpoint, I think this worked out very well,” Alaska Airlines CEO Ben Minicucci said on a conference call with analysts Sunday.
The companies will also gain more than 50% market share in Hawaii with their combined operations, allowing Hawaii travelers to combine their flights to access more mainland cities, while maintaining separate brands. He also mentioned that they can be operated as one. .
Analysts Helane Becker and Thomas Fitzgerald of New York-based investment banking firm TD Cowen said in a research note on Monday that the U.S. legal system over JetBlue Airways’ pending deal with Alaska Airlines He said he was not confident the U.S. Department of Justice would approve the Alaska Airlines acquisition, given the department’s pushback. Spirit Airlines. Still, they said in their report that they believe the Alaska Airlines acquisition should be approved, and that if it receives regulatory approval, Hawaiian Holdings’ stock price will rise to nearly $18 and continue to rise. He said he expected it to remain at that level.
Regarding the purchase price, Alaska Airlines Chief Financial Officer Shane Tackett told analysts that paying $1 billion for Hawaiian Airlines stock at $18 per share was fair.
Tackett also said the deal is “very valuable,” given that the $1.9 billion value, which includes the assumption of $900 million of Hawaiian’s debt, represents 0.7 times Hawaiian’s trailing 12-month revenue. “It is something that has something to do with it.” By comparison, five other industry acquisitions over the past 20 years, including Alaska Airlines’ acquisition of Virgin America in 2016, had an average multiple of 1.7x.
The purchase price was agreed to on Saturday by members of the boards of Seattle-based Alaska Airlines and Hawaiian Holdings, a kamaaina company founded in 1929.
Hawaiian Airlines President and CEO Peter Ingram told analysts that the deal is a good deal for the airline’s shareholders.
“We believe this all-cash transaction creates significant, immediate and attractive value for our shareholders,” he said on a conference call Sunday.
Shareholders of both airlines are expected to vote on whether to approve the deal in early 2024.
Hawaiian Holdings stock traded around $18 in mid-2022, but has been in a volatile decline since then. Over the past decade, the company’s stock price rose to nearly $60 in 2016, but fell to around $9 in early 2020 as the impact of the coronavirus pandemic became apparent.
Hawaiian Holdings’ largest shareholders are Blackrock Inc., US Global Investors Inc., and Vanguard Group, with a combined ownership of over 30%.
Several law firms announced Monday that they are investigating whether members of Hawaiian Holdings Inc.’s board of directors sold out shareholders.
Alaska Airlines said in a presentation that the purchase price represents an “attractive” premium for Hawaiian Holdings shareholders.
The companies retain the option to exit the deal, but at a cost, according to documents filed with the U.S. Securities and Exchange Commission on Monday.
For example, Hawaiian Holdings would have to pay $39.6 million to Alaska Airlines if it backed out of the sale in favor of a better offer; Holdings must pay $100 million.
Both companies have outside financial and legal advisors in connection with the transaction. Hawaiian Airlines’ financial advisor is Barclays, and its legal advisor is Wilson Sonsini Goodrich & Rosati Professional Corporation. Alaska Airlines’ financial advisors are BofA Securities and PJT Partners, and O’Melveny & Myers LLP is its legal advisor.