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Southwest Announces Takeover Bid of ExpressJet
Associated Press
Southwest Airlines Announces Takeover Bid of ExpressJet Airlines
Thursday, April 1, 8:47 am ET
By Matthew Berkowitz, AP Business Writer
Low fare carrier announces merger valued in the billions
ARLINGTON, Va. (AP) -- In a surprise move, Southwest Airlines (NYSE: LUV) announced plans today to acquire regional carrier ExpressJet Airlines (NAS: XJET) from parent company Continental Airlines (NYSE: CAL) in a deal valued at several billion dollars. Southwest initiated a takeover bid of ExpressJet stock at $20 per share and agreed to pay off ExpressJet's debt owed to Continental, in exchange for ExpressJet's entire fleet of regional jets and it's capacity purchase agreement with Continental.
In a press conference, Southwest's President and Chief Operating Officer Colleen Barett told reporters, "We look forward to our new relationship with ExpressJet and think they will fit in nicely with our operations at Southwest. We can't wait to make them part of our family." She explained that Southwest had been looking at several options to expand, from larger aircraft from Boeing to codesharing with smaller regional airlines. But in the end, aquiring ExpressJet made the most sense, she said.
ExpressJet currently operates a fleet of 235 Embraer regional jets to over 130 destinations in the U.S., Mexico, and Canada. Up until 2 years ago, the airline had been a fully owned subsidiary of Continental Airlines. But in an effort to pay down it's own debt, Continental spun the regional carrier off into a holding company and leased 100% the regional's seats back in a capacity purchase agreement.
Analysts say that Southwest's aquisition of ExpressJet is a bold move, but it may help Southwest become the dominant carrier in an already fragile airline market. John Holstein of JP Morgan explains, "Southwest and ExpressJet's corporate culture have a lot of similarities. Both have a single fleet type, which keeps costs down. They both consistently have high dispatch, on-time, and reliability performance. Plus, they have quite a bit of common route structure." He went on to explain that ExpressJet already flies in and out of nearly all of Southwest's hubs, making the transition a smooth one.
But analysts are unsure what Continental will do to replace the flying done by ExpressJet. Besides ExpressJet, Continental also uses several other smaller carriers to supplement its flying. It is unsure whether these carriers will have the capacity to pick up all of ExpressJet's current route structure.
But when asked for comment, Continental's CEO Gordon Bathune did not seemed worried. "We are looking at other carriers, such as Mesa to pick up the slack," he said. He then explained that in today's market, there are several regional carriers that have excess capacity available. Mr. Bathune went on to say, "After putting some bids out, I expect that we will find a carrier that will meet our needs, at a lower cost then we currently spend for ExpressJet's services. Really, after looking at Southwest's offer, we just want to take the money and run."
ExpressJet's management seemed excited about the merger. ExpressJet's President Jim Reem stated, "We look forward to serving Southwest in the future. We are confident that they will find that we can deliver the same high quality product that Soutwest customers are used to. This is an exciting moment in our company's history."
There is no word yet on how the two companies will be merged, whether they will remain as separate entities or become a single company. The two companies have different unions representing their work groups, which historically can make for a rough transition. Normally, if two merging companies have the same union, employee integration takes place using an agreed upon system to preserve the employees' senority, but with different unions, there is no such guarantee. "Whatever Southwest decides on, I'm sure the pilot group at ExpressJet Airlines will be happy with the outcome," said Capt. Jay Panarelo, chairman of the CAL pilots union’s Master Executive Council, a unit of the Air Line Pilots Association. "We expect that Southwest will give the pilots of ExpressJet the fair treatment they deserve." Union representitives from Southwest were unavailable for comment.
Southwest shares remained unchanged after the announcement, while Continental's dropped sharply. Shares of ExpressJet Holdings rose slightly after investors heard news of the merger.
Associated Press
Southwest Airlines Announces Takeover Bid of ExpressJet Airlines
Thursday, April 1, 8:47 am ET
By Matthew Berkowitz, AP Business Writer
Low fare carrier announces merger valued in the billions
ARLINGTON, Va. (AP) -- In a surprise move, Southwest Airlines (NYSE: LUV) announced plans today to acquire regional carrier ExpressJet Airlines (NAS: XJET) from parent company Continental Airlines (NYSE: CAL) in a deal valued at several billion dollars. Southwest initiated a takeover bid of ExpressJet stock at $20 per share and agreed to pay off ExpressJet's debt owed to Continental, in exchange for ExpressJet's entire fleet of regional jets and it's capacity purchase agreement with Continental.
In a press conference, Southwest's President and Chief Operating Officer Colleen Barett told reporters, "We look forward to our new relationship with ExpressJet and think they will fit in nicely with our operations at Southwest. We can't wait to make them part of our family." She explained that Southwest had been looking at several options to expand, from larger aircraft from Boeing to codesharing with smaller regional airlines. But in the end, aquiring ExpressJet made the most sense, she said.
ExpressJet currently operates a fleet of 235 Embraer regional jets to over 130 destinations in the U.S., Mexico, and Canada. Up until 2 years ago, the airline had been a fully owned subsidiary of Continental Airlines. But in an effort to pay down it's own debt, Continental spun the regional carrier off into a holding company and leased 100% the regional's seats back in a capacity purchase agreement.
Analysts say that Southwest's aquisition of ExpressJet is a bold move, but it may help Southwest become the dominant carrier in an already fragile airline market. John Holstein of JP Morgan explains, "Southwest and ExpressJet's corporate culture have a lot of similarities. Both have a single fleet type, which keeps costs down. They both consistently have high dispatch, on-time, and reliability performance. Plus, they have quite a bit of common route structure." He went on to explain that ExpressJet already flies in and out of nearly all of Southwest's hubs, making the transition a smooth one.
But analysts are unsure what Continental will do to replace the flying done by ExpressJet. Besides ExpressJet, Continental also uses several other smaller carriers to supplement its flying. It is unsure whether these carriers will have the capacity to pick up all of ExpressJet's current route structure.
But when asked for comment, Continental's CEO Gordon Bathune did not seemed worried. "We are looking at other carriers, such as Mesa to pick up the slack," he said. He then explained that in today's market, there are several regional carriers that have excess capacity available. Mr. Bathune went on to say, "After putting some bids out, I expect that we will find a carrier that will meet our needs, at a lower cost then we currently spend for ExpressJet's services. Really, after looking at Southwest's offer, we just want to take the money and run."
ExpressJet's management seemed excited about the merger. ExpressJet's President Jim Reem stated, "We look forward to serving Southwest in the future. We are confident that they will find that we can deliver the same high quality product that Soutwest customers are used to. This is an exciting moment in our company's history."
There is no word yet on how the two companies will be merged, whether they will remain as separate entities or become a single company. The two companies have different unions representing their work groups, which historically can make for a rough transition. Normally, if two merging companies have the same union, employee integration takes place using an agreed upon system to preserve the employees' senority, but with different unions, there is no such guarantee. "Whatever Southwest decides on, I'm sure the pilot group at ExpressJet Airlines will be happy with the outcome," said Capt. Jay Panarelo, chairman of the CAL pilots union’s Master Executive Council, a unit of the Air Line Pilots Association. "We expect that Southwest will give the pilots of ExpressJet the fair treatment they deserve." Union representitives from Southwest were unavailable for comment.
Southwest shares remained unchanged after the announcement, while Continental's dropped sharply. Shares of ExpressJet Holdings rose slightly after investors heard news of the merger.
