Spirit Airlines Rejects JetBlue Offer, Sticks to Frontier Deal

JetBlue’s offer for Spirit came at a higher price than Frontier’s cash and stock offer, which was originally valued at $2.9 billion. However, Spirit’s board said it thought there was too much risk of regulators banning a merger with JetBlue, even after JetBlue pledged to shed assets to get the regulatory approval and to pay a break fee of $200 million if it was unable to complete the proposed acquisition for antitrust reasons.

“After careful review and extensive dialogue with JetBlue, the board of directors has determined that JetBlue’s proposal involves an unacceptable level of closing risk that would be borne by Spirit shareholders,” Spirit’s chairman said Monday. McCardner.

JetBlue’s alliance with American Airlines Group Inc.

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in New York and Boston was of particular concern to Spirit, according to a letter from Mr. Gardner and Spirit’s chief executive, Ted Christie, to JetBlue CEO Robin Hayes. The Department of Justice has challenged this arrangement and is taking legal action to block it.

“We find it hard to understand how JetBlue can believe that the DOJ, or a court, will be persuaded that JetBlue should be allowed to form an anti-competitive alliance that aligns its interests with a legacy carrier, and then undertake an acquisition that will eliminate the larger [ultralow-cost] carrier. »

JetBlue said Monday it was not giving up and released details of its latest bid in a bid to win over Spirit shareholders.

In a letter to Spirit’s chief executive and chairman on Friday, JetBlue’s Mr. Hayes said he was confident Spirit shareholders would prefer JetBlue’s offer.

“While we would undoubtedly prefer to negotiate a transaction with you, if you continue to refuse to constructively engage with us so that we can deliver this value to your shareholders, we are actively considering all other options available to you. us,” Mr. Hayes wrote. . He did not specify what other options JetBlue was considering.

Shares of Spirit fell 9.6% on Monday morning. Frontier shares fell 2.26% and JetBlue rose 1.76%.

JetBlue released details of its latest offer for Spirit on Monday.

Photo:
Justin Lane/Shutterstock

JetBlue and Frontier see Spirit as key to their ambitions to create America’s fifth-largest airline and take on the biggest carriers that dominate the industry after a series of mergers. The two agreements offer two competing visions, each of which can reshape the airline industry.

Frontier and Spirit are both part of a fast-growing niche of airlines that cater to budget-conscious travelers, with low base fares and fees for everything from bottled water to baggage. by hand. They said their combination would create a behemoth at a very low cost.

JetBlue charges slightly lower fares than its larger competitors, but marketed itself as a premium airline that combines lower fares with perks like free Wi-Fi and upgraded snacks, plus a business class section including premium seats and in some cases. , suites with closing doors.

Frontier and Spirit announced plans to merge in February — a deal the two carriers have been discussing, on and off, for years, according to filings. The most recent round of talks began in earnest last summer.

Spirit Airlines Rejects JetBlue Offer Sticks to Frontier Deal

According to JetBlue CEO Robin Hayes, the carrier has wanted to sue Spirit for years.

Photo:
Chris J. Ratcliffe/Bloomberg News

Mr. Hayes said JetBlue had wanted to sue Spirit for years, and news of Spirit’s deal with Frontier prompted JetBlue to act. “Once the Spirit and Frontier deal was announced, it created a window of opportunity that if you don’t act, it’s gone,” Mr Hayes said last month.

Some analysts questioned the proposed combination of JetBlue and Spirit, saying that JetBlue would not reap the full benefits of Spirit’s low-cost mode. JetBlue reportedly needs to raise wages and said it will reconfigure Spirit’s notoriously cramped planes to match its own roomier layouts.

JetBlue argued that buying Spirit would boost its growth with an influx of new planes and pilots, allowing it to enter new markets faster than it otherwise could.

Spirit’s board is unconvinced, proposing on April 25 that JetBlue accept a “strong undertaking” requiring JetBlue to “take all necessary steps to obtain regulatory clearance” – including dropping its partnership with American, according to Monday’s letter to Mr. Hayes.

JetBlue revised its proposal on April 29. He offered to divest all of Spirit’s assets in New York and Boston to avoid increasing its presence in markets where the Justice Department has flagged concerns about partnering with American, but refrained from saying that it was ready to completely get out of this agreement. JetBlue argued that a merger between Spirit and Frontier could pose similar regulatory risks, without the safeguards JetBlue had provided in its updated offer.

But Spirit said JetBlue’s proposed steps didn’t go far enough to ensure the deal would be approved, and its concerns about a merger with JetBlue ran deeper than the potential hurdle posed by partnering with American in the North. -East.

JetBlue argued that its presence in a market helps lower fares more than ultra-low-cost carriers like Spirit and Frontier. JetBlue said it’s a sign it would be more capable of mounting a real challenge to American Airlines, Delta Air Lines Inc.,

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United Airlines Holdings Inc.,

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and Southwest Airlines Co.

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that Spirit and Frontier would be together.

Spirit executives said they disagreed. The acquisition by JetBlue would effectively eliminate a disruptive discounter, Mr. Gardner and Mr. Christie wrote in their letter on Monday, which would likely lead to reduced capacity and therefore higher fares, which they say could cause concern among antitrust authorities.

Spirit’s board concluded that a merger with Frontier “would do an even better job of delivering ultra-low fares to more consumers and competing more effectively with the Big 4 carriers, as well as JetBlue.”

Write to Alison Sider at [email protected]

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