Aktien Alaska Air Group is offering a 270% premium for Hawaiian Holdings stock.

Last Updated: 6. Dezember 2023By

Strong price increases are the norm in takeovers and mergers, but the share price explosion of Hawaiian Holdings is rare. After rival Alaska Air Group put a takeover offer on the table, the airline’s share price increased by almost four times. This marks the next round of consolidation in the American aviation industry.

Alaska Air Group offers 1.9 billion dollars, Alaska will pay 18 dollars per share in cash, plus 900 million dollars of Hawaiian’s debt. This translates to a total enterprise value of 1.9 billion dollars. The day before the takeover announcement, Hawaiian Holdings‘ shares were trading at 4.86 dollars. This means that the bidder Alaska Air Group is willing to pay a premium of 270%.

Hawaiian Holdings in strong turbulence The offer comes after the share price of Hawaiian Holdings fell into strong turbulence. The forest fires on Maui, high kerosene prices and recalls of engines from some of the Airbus planes used by Hawaiian contributed to a 65% drop in the share price in the last twelve months. Additionally, competition has been putting pressure on the airline: Rival Southwest is trying to make it difficult for the airline to do business between Hawaii and the continental US. The pandemic-related slowdown in tourism between Asia and Hawaii has also had a braking effect.

Around 10% growth expected in 2024 Hawaiian Airlines is expected to generate revenue of 2.7 billion dollars in 2023 and 3 billion dollars in 2024. This means that Alaska Air Group is paying 0.7 times the revenue, which is about one third of the average of recent airline transactions.

A comparison with the bidder: Analysts expect Alaska Air Group to generate revenue of 10.42 billion dollars this year, which should increase to 10.86 billion dollars next year.

The overlap between the two airlines‘ businesses is very small. According to Alaska’s CFO Shane Tackett, the offer only overlaps on twelve routes, which is 3% of their total seats.

Positive contribution to results within 24 months The merger with rival Hawaiian is expected to have a positive impact on Alaska’s results within two years of the transaction being completed. Additional annual savings of 235 million dollars are expected to be realized. The takeover has been approved by the boards of both airlines and still requires the approval of Hawaiian Holdings‘ shareholders and regulatory authorities. It is expected to be completed within 12 to 18 months, the airlines said.

Deal far from easy Experts expect the merger to be an ambitious undertaking. The administration of US President Joe Biden has recently been skeptical of airline deals. The US Department of Justice is currently trying to block the 3.8 billion dollar merger between JetBlue and Spirit Airlines.

Early this year, federal authorities managed to dissolve an alliance between JetBlue and American Airlines Group in the northeast of the USA. A federal judge found that the partnership gave the airlines too much power on certain markets and harmed consumers through higher prices and a smaller selection.

Share price significantly lower than takeover price The share price reactions could hardly have been more different. While Hawaiian Holdings‘ shares soared by 192% immediately after the announcement, Alaska Air Group’s shares dropped by 14%. However, Hawaiian Holdings‘ share price is still well below the takeover price of 18 dollars. Yesterday in the afternoon session the share price was trading around 14 dollars. This reflects investors‘ skepticism. The investors obviously have strong doubts that the merger will go through without complications.