ExpressJet shares soar by nearly half following SkyWest bid
NEW YORK—ExpressJet Holdings Inc. shares jumped by more than half Friday after the regional carrier rejected a rival's takeover bid as too cheap, but signaled it might be willing to sell for the right price.
The Houston airline said SkyWest Inc.'s offer of $3.50 per share undervalues the company, which mainly operates connecting flights under contract to Continental Airlines Inc. and Delta Air Lines Inc. It also said it was establishing a committee to review "strategic and operational alternatives" to the bid.
"The initial SkyWest offer is inadequate and represents an opportunistic attempt by SkyWest to acquire the company at a price well below the true value that ExpressJet would bring to a combination," ExpressJet said in a statement.
ExpressJet shares have been hammered along with other airline stocks in recent months as the economy soured and fuel prices soared. The stock was trading above $6 per share as recently as July, although it has not broken above the proposed purchase price since mid-February.
While the company said SkyWest's existing offer does not fairly reflect ExpressJet's value, it did acknowledge that the combined company "would likely produce meaningful synergies." That suggests ExpressJet might be willing to consider a higher offer.
"We believe that ExpressJet management would be open to a higher offer, which SkyWest may be willing to make," Calyon Securities analyst Ray Neidl said in a note to investors. He added that "we have doubts about ExpressJet's ability to survive in the long run and think that ExpressJet would be wise to consider the current offer."
SkyWest Vice President of Finance and Treasurer Mike Kraupp declined to comment when asked whether SkyWest might consider raising its bid. The company said in a statement it was disappointed by the rejection and planned to review its options, which could include altering or withdrawing its offer.
"The ball is back in our court," Kraupp said.
A spokeswoman for ExpressJet, citing the recommendation of legal counsel, declined to comment on the bid.
Airlines of all sizes have come under increasing pressure to cut costs and boost revenue in the face of rapidly rising fuel prices, and a number of smaller carriers have gone out of business or turned to bankruptcy protection in recent weeks. Many industry observers argue that more consolidation is needed for the industry to remain viable.
Earlier this month, Delta and Northwest Airlines Corp. agreed to combine to create what would be the world's biggest airline. Other large carriers have reportedly been in talks about tie-ups of their own.
Neidl said trading in ExpressJet shares suggests the market believes there is a 50/50 chance the deal could go through, although he believes the odds are better because shareholders will likely pressure ExpressJet to sell. He rates the stock "Neutral."
"If a deal is not consummated, we believe the stock would revert to its pre-offer level around $2 per share," Neidl added.
ExpressJet shares surged $1.16, or 55.5 percent, to close at $3.25.
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