It may not be obvious, but Alaska and Hawaii have a lot in common.
While their respective climates would never be confused, both states have the distinction of being admitted to the union in 1959.
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Additionally, both have significant native populations and cultures and rely heavily on tourism. Hawaii and Alaska are geographically isolated from the continental US and have strategic military importance due to their location.
Now the Aloha State and the Last Frontier come together in the sky, in a way, with Alaska Air (ALK) – Get a free report looking to buy Hawaii Airlines (JA) – Get a free report for $18 per share in cash, or approximately $1.9 billion, which includes $900 million of Hawaiian Airlines net debt.
The proposed deal would unite airlines that largely serve destinations in the Pacific region and operate competing flights to Hawaii and solidify Alaska Airlines' position as the fifth-largest airline in the United States.
“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 CEO Ben Minicucci said in a statement. .
stocks are going in opposite directions
The airlines will retain their separate brands, but said that together they will have a broader reach, according to the Wall Street Journalconnecting Hawaii to three times as many destinations in the continental US and providing Alaska Air with a new hub in Honolulu for flights to Asia.
The board of directors of both companies approved the transaction, which is expected to close in the first quarter of 2024, subject to regulatory approval, which could present an issue in light of some recent court cases.
Shares of the two companies were going in opposite directions on December 4.
Alaska Air was falling 14% to $34.13 at last check, while Hawaii Air was heading for the stratosphere, rising 183% to $13.76.
Raymond James twice downgraded Alaska Air to Market Perform from a Strong Buy without a price target following the announcement.
With the acquisition unlikely to close within 12 to 18 months, Alaska's earnings recovery prospects are intact, with the only likely change being a delay in resuming the dividend, the firm said in a release note. investigation.
Raymond James said he believes the acquisition makes sense in the long term and that Alaska has the balance sheet and earnings strength to pull it off.
However, given the current macroeconomic uncertainty, the complexity of executing the merger should affect sentiment and will likely limit the bullish scenario in the short and medium term, the firm said.
Meanwhile, Deutsche Bank analyst Michael Linenberg downgraded Alaska Air to hold from buy with a price target of $44, down from $55, while Hawaiian Airlines was upgraded to buy from hold.
Justice Department challenges airline mergers
The analyst said the synergy estimate is conservative and the implied transaction metric is attractive.
Linenberg said he views the transaction positively and believes it will drive significant long-term value creation. However, airline mergers face high execution risk, the bank said.
In fact they do. Earlier this year, a federal judge in Boston ruled that American Airlines (AAL) – Get a free report and JetBlue (BLUE) – Get a free report They had abandoned their association in the northeastern United States.
The US Department of Justice had argued that the deal would end up costing consumers hundreds of millions of dollars a year.
In 2016, JetBlue lost a bid to buy Virgin America after Alaska Airlines swooped in with an offer of $57 per share, or $2.6 billion.
The Justice Department is also seeking to block JetBlue's $3.6 billion bid to buy low-cost airline Spirit. (SAVE) – Get a free report arguing that it would create an anti-competitive environment and leave consumers with few options.
A federal judge in Boston will hear final arguments in the case. A courtroom filing alleged that at one point JetBlue CEO Robin Hayes said that “spirit is the natural next step in our long-term goal” of Alaska Airlines.
JetBlue CEO Robin Hayes denied the allegation and testified that JetBlue never initiated such conversations.
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