Why Alaska Air Shares Are Diving Today

Alaska Air Group Inc ALK shares are diving today by over 12% after the company penned an acquisition deal with Hawaiian Holdings Inc HA worth approximately $1.9 billion, including $0.9 billion of HA's net debt. 

The transaction value translates to $18.00 per share in cash, reflecting a transaction multiple of 0.7x, around one-third the average of recent airline transactions.

The merger will boost the fifth largest U.S. airline to a fleet of 365 narrow and wide-body airplanes, allowing guests to reach 138 destinations through combined networks and over 1,200 destinations through the Oneworld Alliance.

As per the deal, Honolulu will become a key hub for the combined airline with expanded service for residents of Hawai'i to the Continental U.S. and creating new connections to Asia and across the Pacific for travelers across the U.S.

The company expects at least $235 million of expected run-rate synergies to Alaska's earnings within two years post-close. 

The deal is projected to generate high single-digit earnings accretion for Alaska Airlines within the first two years (high-teens three+ years) post-closure and mid-teens ROIC by year three, excluding integration costs, with returns above Alaska Airlines' cost of capital.

The transaction is anticipated to close in 12-18 months, conditioned upon approval by Hawaiian Holdings, Inc. shareholders (which is expected to be sought in Q1 2024).

Price Action: ALK shares are down 12.6% at $34.70, while HA is up 183% to $13.77 premarket on the last check Monday.

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