Hawaiian Airlines Sale Fools Some Investors : Drastic Drop in Price of Shares Causes Third of Firm’s Value to Seemingly Vanish Overnight

Hawaiian Airlines, often a bridesmaid but never a bride, seemed to be a good stock for speculation.

The majority owner was elderly and eager to sell. The airline was positioned in the center of the increasingly lucrative Pacific Rim, the fastest-growing market in a highly competitive industry. And at least three suitors had wooed the firm in the last two years.

Though the airline’s parent firm, HAL Inc. of Honolulu, was losing money, it was still able to reach a deal in January to sell the company for $45 a share. The deal fell through in April, but shareholders kept betting that another suitor would emerge.

One did. On Sunday, directors of HAL agreed to sell the company to a group headed by former baseball commissioner Peter V. Ueberroth and Newport Beach developer J. Thomas Talbot. The price: $22 a share, or $9.625 below its closing price of $31.625 last Friday.

The deal is an example of how even supposedly savvy investors can get burned on the stock market. The deal also demonstrates the risks of playing in takeover stocks, particularly those not widely traded.

HAL’s stock closed Tuesday at $23.625 in trading on the American Stock Exchange, down $1.625 on the day. Ueberroth and Talbot, who are still arranging financing, will pay from $22 million to $43 million for the firm, depending on the amount of stock the group purchases.

The transaction appears to be a “done deal.” The majority owner, John H. Magoon Jr., said Tuesday that he has agreed to sell a 51% stake--a controlling block--to the Ueberroth-Talbot team. Magoon, who will remain as chairman, owns 56.9% of the firm’s stock.

But 1,900 shareholders own the rest of the stock. How, they may wonder, could a third of the company’s value seemingly evaporate overnight?

It’s easy, say industry analysts: when shares are lightly traded, a single stockholder owns a majority interest, and brokerage houses don’t bother researching the small company.

Even Magoon seemed amazed that the company stock was selling so high, even though he had paid $35 a share to buy out the company president’s 3% stake a few months ago.

“People were speculating that somebody was going to come in and buy at a higher price. They were gambling,” Magoon, 73, said. “It seemed to me the stock was somewhat overpriced.”

Magoon said he is satisfied with $22 a share--especially since the company has lost $30.6 million in the last 2 1/2 years and its liabilities exceeded its assets by $8.5 million at the end of June.

Analysts, who are critical of Magoon’s management of the company, said the losses are expected to continue.

The transaction is not the first in which a buyer paid a below-market price for a troubled airline. Three years ago, Texas Air Corp. offered a below-market price for ailing People Express Inc. and ended up buying it at an even lower price, said Daniel A. Hersh, an industry analyst at Bateman Eichler, Hill Richards Inc. in Los Angeles.

Perhaps a large airline with an interest in Hawaiian Airlines’ dominant inter-island position, its various Pacific Rim routes and its real estate would pay a premium for the firm, but none had stepped forward in two years, he said.

“The company had a value of $90 million in March,” Hersh said. “It wasn’t worth $90 million ever, in my opinion.”

Hersh, one of only two airline industry analysts who follow HAL, said thinly traded stock in a company up for sale can open the door for speculators.

Brokerage houses, which earn money from commissions on stock sales, aren’t usually going to waste time researching companies whose stock isn’t traded daily and in sufficient volume, he said.

Little HAL stock was available every day, he said, and on some days, its stock didn’t change hands at all.

The company draws little attention from brokerage houses. One New York analyst, Glenn D. Engel with Goldman Sachs & Co., said bluntly: “The only reason I can see to cover this company is that it’s a good excuse to take a trip to Hawaii.”

HAL INC. STOCK PRICE

Tuesday close: $23.625, down $1.625

Los Angeles Times