Another opportunity for airlines acquisition?

$Alaska Air(ALK)$ has just announced its intention to acquire $Hawaiian(HA)$ but industry negative news has emerged on Tuesday.

The closed-door deliberations of the US Department of Justice have concluded, and they have stated that they will block $JetBlue Airways(JBLU)$ planned acquisition of low-cost carrier $Spirit Airlines(SAVE)$

Both JetBlue and Spirit Airlines saw significant drops in their stock prices as a result, with JetBlue falling by 4% and Spirit Airlines plummeting by 12%.

Previously, JetBlue had announced in September that it would transfer all of its holdings in Spirit Airlines at Boston and Newark airports to $Allegiant Travel(ALGT)$ as well as sell its holdings in SAVE at LaGuardia Airport in New York to $Frontier Group Holdings, Inc.(ULCC)$

According to Reuters, the reason judge wants to block the deal is that if low-cost operator Spirit Airlines no longer exists, airfare prices are expected to rise due to a lack of market stimulation and the absence of "price pressure on competitors".

This reason should not be underestimated!

Judges and juries have been affected by high inflation in recent years and are easily prone to developing aversion towards price increases, thus impeding this case.

For tradings, the premium for this case is still significant, with SAVE's price at $13.50 and the announced transaction price at around $29, representing a premium of over 100%.

While the acquisition of HA by ALK is considered to have a higher probability of passing regulatory scrutiny, with a premium of only about 30%.

The market generally believes that if SAVE wins this case, its stock price may rise to $26, while if it fails, it may drop to $6 per share. In the straddle options for 8 months from now (July 2024), the breakeven points are $2 and $25; for 3 months from now (February 2024), the breakeven points are $4 and $23.

In other words, if you are bullish on this acquisition, you can buy now; if you think there is no possibility of a result within 3 months, you can short this volatility.

On the other hand, Hawaiian Holdings (HA) may be more suitable for investment as a seller, with both selling call options (as close to the target price as possible) and selling put options offering reasonable short-term value for money.

Happy Trading!

M&A: Profit From Long-Term Arbitrage Opportunity

Due to the gap between acquisition prices and stock prices, mergers and acquisitions of listed companies always bring arbitrage opportunities. ------------------------- Which acquisition cases are worth paying attention to? How can we profit from them? Follow this topic to explore more investment opportunities.

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Another opportunity for airlines acquisition?

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