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Non-Tech : American Airlines Group, Inc.
AAL 28.21-0.2%2:25 PM EDT

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From: Sam2/28/2019 4:02:20 PM
   of 860
 
Southwest Stock Is Flying High Because Even the Rumor of a Warren Buffett Takeover Excites Investors - Barrons.com
DOW JONES & COMPANY, INC. 3:46 PM ET 2/28/2019

Symbol Last Price Change
56.04 +2.19 (+4.07%)
302000 -1000 (-0.33%)
QUOTES AS OF 04:00:52 PM ET 02/28/2019


Southwest Airlines (LUV) stock was gaining on Thursday, as unconfirmed social media speculation that Warren Buffett'sBerkshire Hathaway(BRK/A) might buy out the company gave the shares altitude.

The back story. This is hardly the first time that Southwest(LUV) has been mentioned as a takeover target with Buffett as the suitor. He has voiced his support for airline stocks in recent years, and Berkshire Hathaway(BRK/A) is already Southwest's(LUV) second largest shareholder. That said, the firm has stakes in the Big Three legacy airlines -- American Airlines Group (AAL), Delta Air Lines (DAL), and United Continental (UAL) -- as well.

What's new. At issue was a Twitter post by StockTraders.Net, an online trading portal, which said there was unconfirmed "talk" that Berkshire is "seeking to acquire" the rest of Southwest Airlines(LUV) for $75 a share. The stock spiked shortly after, around 11 a.m. The tweet was first reported by Bloomberg.

In a statement, Southwest(LUV) said, "There has been speculation circulating that Warren Buffett might be looking to acquire an airline for some time, and that Southwest(LUV) might be a good fit. As a policy, we do not comment on speculations but appreciate Berkshire's continued support of Southwest Airlines(LUV)."

Berkshire didn't immediately respond to a request for comment.

Looking ahead. Will a deal happen? At this point, there isn't much to indicate it will get farther than a bottle of water at airport security. (Additionally, a bargain hunter like Buffett could have approached any of the Big 3 for a cheaper price, as American, Delta, and United have all trailed Southwest(LUV) year to date.)

The $75 takeover offer is about a 20% premium to the stock's most recent price -- not too shabby, but also probably not a deal management would leap at, considering the shares are already up more than 20% since the start of the year. Plus, plenty of analysts are arguing that 2019 will be less turbulent for airlines than last year.

Hopes that Buffett might buy an airline have been dusted off on occasion for the past several years, so investors probably want more than an obscure tweet to hang their hats on. (There is also some tangible good news for Southwest(LUV) that seems to have gotten lost amid Thursday's whispers: After the bell Wednesday, we got word the government finally cleared Southwest(LUV) to begin its long-awaited Hawaii routes.

Perhaps the real takeaway here isn't a concrete offer, but what the rumors demonstrate: Airlines, as an investment, may have finally arrived.

The industry went from what Buffett once described as a " death trap" to one that he has invested in, so much so that plenty of people think he wants to own one outright. In the end, 2018 was another year of struggle for many airline stocks, capping the group's up-and-down cycle, one that bears will point to when they argue that a leopard can't change it spots. Yet the fact that markets think an offer from Buffett is a possibility shows that the fundamental framework has shifted. Maybe things really are different this time around.

Southwest (LUV) was up 3.7% to $55.83 in recent trading.

Write to Teresa Rivas at teresa.rivas@barrons.com
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