Stocks React Differently to the Deal
Alaska Air Group has announced its plans to acquire Hawaiian Airlines parent company in a deal worth $1.9 billion. However, the impact on the stocks of the two companies has been quite different. While shares of Hawaiian Holdings surged by 184% to $13.82 in premarket trading, Alaska Air stock experienced a decline of more than 10%.
Reason Behind Hawaiian’s Surge
The significant jump in Hawaiian Holdings shares can be attributed to the substantial premium of 270% that Alaska Air is paying, based on Friday’s closing price. Despite this boost, the shares are still trading below the deal price of $18. This might reflect concerns among investors regarding a potential antitrust review of the merger by the Biden administration.
Recent Performance of Hawaiian Holdings
Hawaiian stock has faced challenges throughout this year, with a decline of 53% since January. The company has been hit by earnings setbacks due to the Maui wildfires and engine problems.
Potential Regulatory Hurdles
Investors considering capitalizing on Hawaiian’s potential upside should be mindful of the regulatory landscape. The Justice Department has been actively opposing mergers in the airline industry, including the proposed $3.8 billion merger of JetBlue Airways and Spirit Airlines. Additionally, JetBlue was compelled to abandon its alliance with American Airlines in the Northeast due to government intervention. A ruling on the JetBlue-Spirit case could set a precedent for the Alaska-Hawaiian merger, which would result in the new entity holding more than a 50% market share in the Hawaiian air market.
Insights from Alaska’s CEO and Analysts
Alaska CEO Ben Minicucci has stated that out of the combined 14,000 flights operated by both airlines, only 12 overlap. Furthermore, he confirmed that there have been no discussions with the government regarding the proposed merger.
TD Cowen analyst Helane Becker believes that the deal is beneficial for both airlines. She stated, “For Alaska, it enables international growth in the Asia Pacific region, which is one of the faster-growing markets in the world. For Hawaiian, it enables their passengers to fly to more places on the U.S. mainland on a non-stop or one-stop basis, as opposed to multiple stops currently.”
However, regulatory approval for the merger is not guaranteed, especially considering the ongoing battle between the Justice Department and JetBlue-Spirit merger.