In its initial bid to acquire Hawaiian Airlines, Alaska Airlines offered $20 per share before the sides eventually agreed on a final price of $18, as the Honolulu-based carrier’s shares price lost two-thirds of its value during the second half of 2023.
That information was revealed in Hawaiian Holdings’ proxy statement to shareholders, filed with the US Securities and Exchange Commission on 9 January.
The document, released ahead of a 16 February special shareholder meeting to decide the fate of the carrier, outlines a blow-by-blow timeline of how the deal came together in less than four months at the end of 2023.
The document says Alaska chief executive Ben Minicucci first approached Hawaiian CEO Peter Ingram in early August. At their initial meeting on 9 August, “Mr Minicucci expressed Alaska’s interest in acquiring Hawaiian for $20 per share in cash. Mr Ingram informed Mr Minicucci that he would share Alaska’s proposal with the Hawaiian board. On that day, our common stock closed trading at $10.62 per share.” (On 10 July the shares had been trading at $12.40.)
That meeting took place a day after fast-moving wildfires destroyed much of Lahaina in western Maui, forcing Hawaiian to suspend flights there. That catastrophe, which would cost the carrier $25 million in revenue, coupled with the prospect of having to remove a yet-undetermined number of Airbus A321neos from service due to a Pratt & Whitney (P&W) engine recall from July, pushed Hawaiian into a difficult spot.
In addition to those factors, high costs plagued Hawaiian, and post-pandemic business travel to Asia had not yet rebounded satisfactorily. In July, the airline posted a second-quarter loss of $12.3 million. That had followed a first-quarter loss of $98.3 million and a 2022 loss of $240 million.
The airline had to revise long-term earnings expectations, and correct them with “certain refined assumptions related to aspects of our business”. The board approved the “September 2023 Long-Term Plan”, which it shared with Alaska and would become the basis of further financial analyses. The Lahaina fires and the P&W recall, however, had not yet been included in the calculations.
By early October, the company’s common shares were trading at just $4.91.
On 24 October, Hawaiian said it lost $48.7 million during the third quarter of 2023.
Minicucci and Ingram again spoke on 25 October.
“During this conversation, Mr Minicucci stated that Alaska had lowered its acquisition proposal to $17.00 per share in cash,” the document reads.
“With respect to this lowered acquisition price, Mr Minicucci noted: the higher capital expenditures contemplated by the September 2023 Long-Term Plan than those assumed by Alaska for the Initial Proposal; and the lower profitability estimates for Hawaiian during 2024 and 2025 contemplated by the September 2023 Long-Term Plan as compared to Alaska’s assumptions underlying the initial proposal.”
Included in the revised proposal was a $75 million reverse-termination fee should the deal not be consummated for regulatory reasons.
That day, airline’s stock closed trading at $4.13 per share, about one-third of what it had been three-and-a-half months earlier.
On 6 November, Ingram countered with a proposal of $18.50 per share, with a $100 million reverse termination fee. A day later Minicucci came back with $17.50 per share, and confirmed the $100 million reverse termination fee.
“In response, Mr Ingram said that he did not wish to bring a proposal to the Hawaiian board that contemplated an acquisition below $18.00 per share,” the document says. “Mr Minicucci responded that he was willing to increase the per-share value of Alaska’s proposal to $18.00 with a $100 million reverse termination fee, but only if the two parties aligned on these terms that day.”
“Mr Ingram then discussed the [proposal] with the other members of the executive committee.”
Hawaiian’s stock was trading at $4.29 per share.
FEAR OF ‘DAMAGING’ LEAKS
During Hawaiian’s board meeting on 15 November, Ingram and the airline’s top executives convinced the board to accept the offer.
“The Hawaiian board expressed its concurrence with the executive committee’s position that the second revised proposal provided a sufficient basis for Hawaiian to provide Alaska with additional due diligence information and for the parties to undertake additional work in support of reaching a transaction,” the document says.
The board was conscious of “the potential impact on us of a prolonged regulatory review process”, and “the risk of leaks or rumours about Hawaiian and how such leaks or rumours could be damaging to us”.
Earlier, the board had decided “not to contact other parties to see if there was other interest in acquiring Hawaiian”, so they were stuck with that suitor, or none.
During its 15 November meeting, “the Hawaiian board also again noted the limited universe of potential buyers of our company, competition law considerations for each such buyer, and the larger regulatory landscape in the airline industry”.
In the following three weeks, representatives of both companies and their lawyers completed the due diligence process and finalised the merger document.
On 2 December, a Saturday, Hawaiian’s board met once again.
“The Hawaiian board, after considering the factors… unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement were in the best interests of Hawaiian and its stockholders, and adopted and approved the merger agreement,” the statement says. “Hawaiian and Alaska subsequently signed the merger agreement.”
Early the next morning, Alaska and Hawaiian announced their planned $1.9 billion transaction, which includes Alaska taking on $900 million of Hawaiian’s debt. The companies expect the acquisition will close 12-18 months, with Minicucci slated to take the top job at the combined company.