Alaska Air Group and Hawaiian Holdings have entered into a definitive agreement where Alaska Airlines will acquire Hawaiian Airlines for $18.00 per share in cash, for a transaction value of approximately $1.9bn, inclusive of $0.9bn of Hawaiian Airlines net debt.
The two companies believe that combining will create a “stronger platform for growth and competition in the US, as well as long-term job opportunities for employees, continued investment in local communities and environmental stewardship”.
Ben Minicucci, chief executive officer (CEO) of Alaska Airlines, described the combination as “an exciting next step in our collective journey” and commented on the “longstanding and deep respect for Hawaiian Airlines”.
In response, Peter Ingram, Hawaiian Airlines president and CEO, said that joining with Alaska Airlines would enable to continuation of the airline, formed in 1929, adding that with the “additional scale and resources” the airline would be able to accelerate investments in its guest experience and technology, while maintaining the Hawaiian Airlines brand. “We are also pleased to deliver significant, immediate and compelling value to our shareholders through this all-cash transaction,” said Ingram. “Together, Hawaiian Airlines and Alaska Airlines can bring our authentic brands of hospitality to more of the world while continuing to serve our valued local communities."
The combined airline will maintain both Alaska Airlines and Hawaiian Airlines brands while integrating into a single operating platform.
The companies said the combination of complementary domestic, international and cargo networks would enhance competition and expand choice for consumers on the US west coast and the Hawaiian Islands. Honolulu would become a key Alaska Airlines hub, enabling greater international connectivity for West Coast travellers throughout the Asia-Pacific region with one-stop service through Hawai'i.
Both companies stressed the importance of employees and stressed that the combined company remained committed to supporting its Hawaiian workforce.
The companies called the all-cash transaction of $18.00 per share for a total equity value of $1bn a compelling premium for Hawaiian Airlines shareholders, while also delivering attractive value creation for Alaska Airlines' shareholders.
The transaction represents a multiple of 0.7 times revenue, with approximately $235 million of expected run-rate synergies. The combined company is predicted to generate “high single digit earnings accretion for Alaska Airlines within the first two years (high-teens three+ years) post-close and mid-teens ROIC by year three, excluding integration costs, with returns above Alaska Airlines' cost of capital”.
The companies added that there is anticipated material impact on long-term balance sheet metrics, with “return to target leverage levels expected within 24 months”.
The transaction agreement has been approved by both boards but requires regulatory approvals. The deal is expected to close in 12-18 months.
The combined organisation will be based in Seattle under the leadership of Alaska Airlines CEO Ben Minicucci.
BofA Securities and PJT Partners are serving as financial advisors and O'Melveny & Myers is serving as legal advisor to Alaska Airlines. Barclays is serving as financial advisor and Wilson Sonsini Goodrich & Rosati, Professional Corporation is serving as legal advisor to Hawaiian Airlines.