Airline deal off, Hawaiian Airlines shares plummeted 28 percent today after Saturday's announcement that Hawaiian will not agree to the proposed merger with competitor Aloha Airlines.
shares plunge
Hawaiian Airlines announces
that it no longer supports
a merger with AlohaBy Treena Shapiro and Russ Lynch
tshapiro@starbulletin.com
rlynch@starbulletin.comDespite the drop, however, Hawaiian's shares were still trading above their level when the merger proposal was made public on Dec. 19.
Hawaiian's shares closed down $1.16 to $2.99 on heavy volume of 471,400 shares. The stock hit a low of $2.35 earlier in the session.
Hawaiian had often been below $2 in the months preceding the announcement and had closed at $2.50 just before the proposal was aired. The next day it soared 24.4 percent to close at $3.11.
Since then, many shareholders have made big returns on their investment in Hawaiian, selling their shares for well over twice what they paid for them as the stock price rose as high as $4.60.
Today's plunge resulted from Hawaiian's announcement late Saturday that it dropped the support for the merger. Hawaiian exercised its right to refuse to extend the April 18 deadline for an agreement to be reached.
John W. Adams, New York-based board chairman of Hawaiian and leader of the investment group that bought control of Hawaiian in 1996, issued a statement saying the deadline could not be met "for several reasons," including the amount of time needed to get regulatory approvals.
But Adams also said Hawaiian believes a merger would be in the best interests of "the two companies and their constituencies."
Aloha responded yesterday that the talks had fallen through because Hawaiian had come up with a new proposal that Aloha could not accept. It would have put Hawaiian's Adams in charge of the combined airline and given Hawaiian the right to appoint five of the 11 directors. Aloha would get only a "nonexecutive" chairmanship and three directors, with the other three representing the unions.
Aloha said Hawaiian's new plan would have eliminated any role for Greg Brenneman, the former Continental Airlines executive whose Texas-based TurnWorks Inc. got the merger talks going in the first place.
Under the original proposal, Brenneman was to be chairman and chief executive of the new airline and TurnWorks would hold 20 percent of the shares with Hawaiian holding 52 percent and Aloha the rest.
"Aloha could not accept Hawaiian's new proposal because, in our judgment, it was not in the best interest of the state, the traveling public or Aloha's shareholders and employees," said Glenn R. Zander, Aloha's president and CEO.
Zander said Hawaiian's demands were presented during a meeting last Monday. Zander said Hawaiian requested the meeting.
Zander said Hawaiian executives told Aloha that the merger agreement would not continue past the April 18 deadline unless Aloha agreed to the changes proposed by Hawaiian.
On Friday, Aloha's board of directors voted unanimously to proceed only on the basis of the existing merger agreement and with the involvement of Brenneman and TurnWorks.
Hawaiian Air spokesman Keoni Wagner said yesterday, "We don't necessarily agree with Aloha's characterization of the negotiations, but we also prefer not to discuss in public what would otherwise be private conversations."
Wagner said on Saturday that "it's clear that all the parties collectively will not be able to meet the terms of the agreement." He said Hawaiian would not extend the deadline because of increased financial risks if the regulatory approvals were not granted.
Brenneman said yesterday that he was surprised and saddened by Hawaiian's decision to pull out of the merger.
"The failure to extend the timetable essentially precludes completing this complex transaction," Brenneman said.
"Mergers in the airline business are difficult at best. In addition, Aloha and Hawaiian have very different corporate cultures, and this transaction has a long and fateful history. It is my hope that someday Hawaii will receive the benefits that this merger could have provided," Brenneman said.
Gov. Ben Cayetano, who supported the merger, said yesterday the failure was a business decision and had nothing to do with the U.S. Department of Justice, the state Legislature or public opposition.
The airlines had announced plans in December for a merger to ensure the financial viability of both airlines, neither of which has shown a profit since 1998.
For the last three months of 2001, Hawaiian posted operating losses between $12 million and $17 million, not counting $22 million the company received from the federal government for the airport shutdown immediately following the terrorist attacks on Sept. 11.
During the same time period, Aloha's losses were about $11 million. The airline also received federal subsidies of about $5 million.
Opponents of the merger said they feared it would bring higher fares and reduced service. The 6,000 employees of the airlines have worried about work changes and losing jobs.
"I'm glad to see that competition within the state of Hawaii, as far as interisland travel, is going to be preserved," said Kirk McBride, a Hawaiian Airlines pilot and a spokesman for a citizens group that presented Cayetano with an anti-merger petition with more than 20,000 signatures on Feb. 11.
Cayetano said, "The state administration will do its best to try to assure that Hawaii will continue to have two viable interisland carriers."
Zander said, "Aloha has its own business plan to move forward on a stand-alone basis and will continue its proud 55-year commitment to the transportation needs of Hawaii's residents and visitors."
The Associated Press contributed to this report.
