Anatomy of a Acquisition

Alaska initially planned to offer more money for Hawaiian, but it balked after seeing financial projections, according to a new filing

Dear readers,

In its current pursuit to acquire Hawaiian Airlines, Alaska Airlines has not faced much competition. Unlike in 2016, when Alaska sought to acquire Virgin America, Hawaiian's board didn’t contact any other airlines or suitors to see who might be interested in making another offer.

It's not that Hawaiian’s board didn't want more money — it’s that Hawaiian's board determined it needed a lifeline and didn't have many other options. That’s according to a new proxy filing that tells the story of this deal, from Alaska CEO Ben Minicucci’s initial approach to Hawaiian CEO Peter Ingram in August 2023, the maneuvers of Hawaiian’s board as Alaska refined its offer, and the final settling place on Dec. 2, one day before the public announcement. Amazingly, details of the deal never leaked, an important consideration for Hawaiian’s board, which had been worried that public rumors could be damaging to the airline.

As it weighed Alaska’s interest, the board was aware of what would count against the airline in the negotiation: Hawaiian had tricky debt, faulty engines on its Airbus A321neos (a plane it needs for U.S. expansion), and problems in key markets, including Japan and Maui. The board was also aware of the external factors weighing on the deal: the U.S airline climate is different than eight years ago, when President Obama’s Department of Justice gave its approval to the Alaska-Virgin America deal. This time, Hawaiian’s board determined that any other airlines that might want to buy Hawaiian couldn't for antitrust reasons. And the remaining airlines that might get a deal approved either wouldn’t want Hawaiian, or could not afford it. Maybe a private equity shop could have interest, but the board didn’t seem to think that was likely.¹

As I read through the filing, I was struck by how different it is from what Virgin America shared before shareholders approved its deal with Alaska. The last time Alaska pursued a major acquisition, Virgin America’s board pitted it against JetBlue, leading to a massive bidding war. Alaska got its target in 2016, but it paid 27 percent more per share than its initial offer.

If Virgin America’s board was focused on getting the best possible price back in 2015 and 2016, Hawaiian's board seems to have had a different priority — ensuring Alaska didn’t reduce its offer too much once it saw Hawaiian’s financial projections.

Here's the story of how the deal came together. Make sure to read until the end to see Hawaiian’s financial projections for 2024-28. (Spoiler: No one expects a quick turnaround.)