Alaska Air Group (NYSE: ALK) has cleared a big hurdle in its effort to acquire Hawaiian Holdings (NASDAQ: HA), and the target's stock is taking off as a result.
Shares of Hawaiian traded up 11% on Tuesday morning after the U.S. Department of Justice said it would not challenge the $1.9 billion deal.
Nearing the finish line
Alaska agreed to acquire Hawaiian last December, but that agreement by no means made the merger a foregone conclusion. Regulators have been taking an increasingly skeptical view of airline consolidation. Earlier this year, the Justice Department successfully stoppedJetBlue Airways from acquiring Spirit Airlines.
The Alaska/Hawaiian deal involves a lot fewer overlapping routes than JetBlue/Spirit and the airlines have argued since the beginning that it was an easier sell to regulators. On Tuesday, the Justice Department opted against challenging the merger on antitrust grounds.
The deal, if completed, would be the first airline merger to close since Alaska's 2016 acquisition of Virgin America.
Is Hawaiian Holdings a buy?
Alaska in a statement called the Justice Department's decision "a significant milestone in the process to join our airlines." But the carriers still need approval from the Department of Transportation as well as completion of other closing conditions.
When the merger was announced, Justice was seen as the bigger impediment than Transportation, and with that hurdle now clear the odds are high Alaska will buy Hawaiian. But with Hawaiian shares now trading within pennies of the $18-per-share cash buyout price, there is little reason for new investors to climb on board right now.
Alaska could be a more intriguing option. The deal would give it added scale to better compete against larger airlines, as well as access to one of the premier domestic vacation destinations. But Alaska for now will have its hands full with integration, and investors would be wise to put it in a holding pattern.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Alaska Air Group and Hawaiian. The Motley Fool has a disclosure policy.
