The two companies plan to form a transpacific airline
Alaska Airlines (ALK) recently announced that it has reached an agreement with Hawaiian Airlines (HA) to acquire the parent company of Hawaiian Holdings for $1.9 billion in cash and debt.
But the news has sent the shares of the two companies in opposite directions, with Hawaii Holdings' share price up 192% at the time of writing. In the same period, Alaska Airlines' stock price was **157%。While many investors are nervous about such a takeover, Boldbeast believes the deal is a good deal for both airlines.
Huge premium acquisition
Alaska Airlines offered to buy Hawaii Holdings for $18 per share in cash, up from $4 on FridayThe $86 ** price represents a 270% premium. But even with such a high premium, Alaska Airlines only needs to pay 07 times, you can complete the acquisition of Hawaii Holdings.
In many cases, acquisitions tend to put pressure on companies' stock prices and cause them to underperform due to lack of integration experience. But Alaska Airlines has a lot of experience in this area, such as Virgin America, which it acquired in 2016, and has a very strong balance sheet.
Alaska Airlines currently has approximately $10 billion in assets to borrow, including $3 billion in unsecured aircraft and a huge loyalty program membership revenue. The airline said it expects to save the company at least $2 per year once the deal is completed and fully integrated$3.5 billion in cost.
Alaska Airlines is buying Hawaii Holdings because investors have been worried about the health of its balance sheet. Hawaii Holdings, on the other hand, has a large number of aircraft orders, including freighters operated for Amazon (AMZN), but has struggled to take off since the outbreak of the pandemic.
After announcing a major deal, is Hawaii Holdings worth it?
Boldbeast Finance believes that the acquisition is beneficial for both companies.
For Alaska Airlines, the addition of Hawaiian Holdings will significantly increase its presence in the Asia-Pacific region and connect it with alliance partners in Japan and Australia. For Hawaii Holdings, the deal will allow the company to reduce its reliance on a single destination and provide direct or one-stop service to much of the United States.
But it's unclear whether regulators will approve the acquisition. Because Hawaii's regulators have historically been very protective of the state's aviation industry, and Hawaii's regulators have taken a bad view of mergers between airlines, JetBlue Airways (JBLU) was taken to court by Hawaii regulators when it acquired Spirit Airlines (S**E).
So, in theory, Alaska Airlines' acquisition of Hawaii's holdings should be more acceptable to regulators than JetBlue's acquisition of Spirit Airlines. But even if approved, the deal could take more than a year to complete.
So investors have every reason to be excited about the potential merger of the two companies, but given the risks involved in the acquisition and the uncertain timeline, Boldbeast believes that now is not the time to rush Hawaii Holdings.
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