Alaska Air Agrees to Buy Rival Hawaiian in $1.9 Billion Deal (4)

Alaska Air Group Inc. agreed to buy rival Hawaiian Holdings Inc. for $1.9 billion in cash and debt, challenging the Biden administration’s aggressive stance on mergers that has already derailed one partnership between carriers.

Alaska will pay $18 per share in cash in a deal that includes about $900 million of Hawaiian’s debt, according to a statement Sunday. The offer — a significant premium to Hawaiian Holdings’ $4.86 closing price on Friday — sent its stock surging 174% on Monday.

The deal could provide a valuable lifeline to Hawaiian, whose stock has tumbled more than 52% this year. The company has been hurt by the slow return of tourism between Asia and Hawaii following the pandemic and a ramp up in growth in the Hawaii-to-mainland US market by Southwest Airlines Co. Alaska Air Group will be the parent holding company, with Alaska Airlines and Hawaiian Airlines continuing to operate under their separate brands.

WATCH: The deal includes $18 per share in cash and about $900 million of Hawaiian’s debt. Siddharth Philip reports.

Source: Bloomberg

Alaska is taking on the acquisition despite the Justice Department filing a record number of challenges last year to corporate combinations and a pending antitrust challenge to a separate airline deal. A federal antitrust lawsuit over JetBlue Airways Corp.’s $3.8 billion cash takeover of Spirit Airlines Inc. is nearing a close.

“We believe the facts will prevail that this is pro-competitive and pro-consumers,” Alaska Chief Financial Officer Shane Tackett said in an interview. Alaska and Hawaiian Airlines overlap on 12 routes, or 3% of their total seats, he said. “They are very complementary businesses.”

Federal regulators earlier this year succeeded in breaking up an alliance in the northeastern US between JetBlue and American Airlines Group Inc., after a federal judge found the partnership gave the carriers too much power in certain markets and harmed consumers by raising fares and limiting choices.

The deal could “improve fares, though increase complexity by adding long-haul operations from Hawaii to US cities and into Asia,” Bloomberg Intelligence analysts George Ferguson and Francois Duflot wrote in a note. “Overlap appears to be limited, which improves odds of approval.”

LISTEN: Mary Schlangenstein, Bloomberg News US Airlines Reporter, discusses Alaska Air agreeing to buy Hawaiian Airlines. She spoke with hosts Bryan Curtis and Vonnie Quinn on Bloomberg Radio.

Hawaiian Holdings shares jumped to $13.27 in premarket US trading on Monday, still well short of Alaska’s offer. As of Friday, Hawaiian had an equity market value of $250.9 million.

The $1.9 billion total price is “very manageable” financially, Tackett said. “We feel very good about the price. We are getting a market leadership position in a really attractive premium market in Hawaiian,” he added.

The company will hold more than 50% of the Hawaiian market, which has annual revenue of $8 billion, he said, a large part of what convinced Alaska to approach Hawaiian leadership about a combination earlier this year.

“We don’t believe this was an imperative for our business,” Tackett said. “What we saw was an opportunity to gain a second hub in Honolulu” that ultimately could approach Seattle in annual revenue production.

It’s not Alaska’s first experience with an acquisition. The carrier outbid JetBlue to acquire Virgin America Inc. in 2016 for $2.6 billion in cash to extend a stretch of consolidation that had occurred across the industry. Current Alaska Chief Executive Officer Ben Minicucci oversaw Virgin America’s operations while the two carriers combined, helping to prepare him for the latest effort. The almost 20-year Alaska veteran was named CEO in 2021.

The former member of the Canadian Armed Forces practices transcendental meditation twice daily, according to a profile at that time, and said Hawaii was his favorite destination.

The combination with Hawaiian will add to Alaska’s earnings within two years of closing and will produce annual run-rate savings of $235 million, according to the statement.

The acquisition has been approved by the boards of both airlines and still requires approval from Hawaiian Holdings shareholders and regulators. It’s expected to close in 12 to 18 months, the carriers said.

(Updates with Hawaiian Airlines premarket share movement.)

To contact the reporter on this story:
Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editors responsible for this story:
Chester Dawson at cdawson54@bloomberg.net

Shiyin Chen, Anthony Palazzo

© 2023 Bloomberg L.P. All rights reserved. Used with permission.