Spirit Airlines, Inc. SAVE has rejected the acquisition bid from JetBlue Airways Corp JBLU and will proceed with the previously-announced merger agreement with Frontier Group Holdings, Inc. ULCC, parent company of Frontier Airlines, Inc.
What Happened: Spirit and Frontier announced their merger plans in February in a deal valued at $6.6 billion. As a result of the merger, the combined entity will become the nation’s fifth-largest airline.
JetBlue made an unsolicited all-cash $3.6 billion takeover offer, which was 33% higher than Frontier’s $2.9 billion offer. However, the Spirit board rejected JetBlue’s inquiry, claiming the transaction would not be completed.
“We believe a combination of JetBlue and Spirit has a low probability of receiving antitrust clearance so long as JetBlue's Northeast Alliance (NEA) with American Airlines remains in existence,” wrote Spirit Chairman H. McIntyre Gardner and CEO Edward M. Christie III in a letter to JetBlue CEO Robin Hayes. “The U.S. Department of Justice (DOJ), along with Attorneys General in six states and the District of Columbia, have sued to block the NEA, alleging that the alliance ‘will not only eliminate important competition in [Boston and New York City], but will also harm air travelers across the country by significantly diminishing JetBlue's incentive to compete with American elsewhere, further consolidating an already highly concentrated industry.’”
“As you know,” the letter added, “Spirit and many other airline and air travel constituencies have publicly opposed the NEA on grounds that it is anticompetitive. We struggle to understand how JetBlue can believe DOJ, or a court, will be persuaded that JetBlue should be allowed to form an anticompetitive alliance that aligns its interests with a legacy carrier and then undertake an acquisition that will eliminate the largest ULCC carrier.”
What Happens Next: Shortly before Spirit announced its decision, JetBlue put forth a pre-emptive response promising to address the NEA issue.
In a press statement issued by the company, JetBlue pledged “a remedy package that includes the divestiture of all Spirit assets in New York and Boston so that JetBlue does not increase its presence in the airports covered by the NEA. The package would also include gates and assets at other airports, including Fort Lauderdale.”
JetBlue also promised to “provide for a $200 million reverse break-up fee, representing approximately $1.80 per Spirit share, that would become payable to Spirit in the unlikely event the JetBlue transaction is not consummated for antitrust reasons.”
“By creating a national competitor to the Big Four airlines, this transaction would deliver meaningful benefits for customers, superior value for shareholders of both airlines, and new opportunities for our combined crewmembers,” said Hayes. “We have confidence that we can complete this transaction to bring more low fares and great service to more customers. A JetBlue-Spirit combination will deliver enhanced financial strength and accelerate revenue growth and profitability for JetBlue shareholders.”
Trading Action: Spirit shares on Monday were trading at $21.72, down 8.01%, while JetBlue shares were up 1.14% at $11.14, according to Benzinga Pro.
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