Spirit rejects JetBlue bid, favors Frontier merger: Travel Weekly

Spirit Airlines plans to move forward with its original plan to merge with fellow ultralow-cost carrier (ULCC) Frontier rather than accepting the higher-priced, counter buyout proposal of JetBlue. 

The Spirit board’s unanimous decision, the company said, stems from its view that antitrust regulators at the Justice Department are unlikely to approve a JetBlue-Spirit merger as long as JetBlue remains in its Northeast Alliance (NEA) partnership with American in the Boston and New York markets. The DOJ, in combination with six states, is currently suing JetBlue and American in an effort to break up the NEA.

“As you know, Spirit and many other airline and air travel constituencies have publicly opposed the NEA on grounds that it is anticompetitive,” Spirit chairman H. McIntyre Gardner and CEO Ted Christie wrote in a letter to JetBlue CEO Robin Hayes on Monday. “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.”

JetBlue offered $3.6 billion for Spirit

Early last month, JetBlue made a bid to purchase Spirit for $3.6 billion and $33 per share, exceeding Frontier’s February purchase proposal of $2.9 billion and $26 per share. Spirit’s board originally determined that the JetBlue bid could represent a “superior proposal” under the terms of the Spirit-Frontier merger agreement, a move that was a legal prelude to subsequent negotiations between Spirit and JetBlue. 

Related: Will a Frontier-Spirit merger get the DOJ’s blessing?

However, the Spirit board said Monday that further analysis had led to the conclusion that the JetBlue bid is not superior to the Frontier bid because the potential for regulatory denial represents too large of a risk to shareholders. 

Spirit made that announcement publicly on Monday morning, just five minutes after JetBlue decided to publicly reveal that it had submitted an enhanced proposal to Spirit on April 29 in response to demands put forward by the Spirit board and management. 

JetBlue’s “remedy package,” as the airline deemed it, includes a commitment to divest assets as needed to assuage competition regulators. In particular, JetBlue said it would offer to divest of all Spirit assets in New York and Boston so that JetBlue does not increase its presence in airports covered by the NEA. The carrier also said it would divest of gates and other assets at Fort Lauderdale Airport, where Spirit is based and JetBlue operates its third-largest station. 

As further insurance to Spirit shareholders, JetBlue said it would pay $200 million to Spirit if regulators were to reject the merger proposal. 

JetBlue also rebutted assertions that it competes directly with Spirit in more markets than Frontier. JetBlue, the company said, competed with Spirit on 48 nonstop routes based on DOT data for the first three quarters of last year, compared with the 76 overlapping Spirit-Frontier routes. 

A combined JetBlue-Spirit, JetBlue added, would also be similar in size to a combined Frontier-Spirit, with the former having a 9% U.S. market share, compared to 8% for the latter. 

“Spirit shareholders would be better off with the certainty of our substantial cash premium, regulatory commitments and reverse break-up fee protection,” Hayes said. “The Frontier transaction has a similar regulatory profile to ours but offers no divestiture commitment and no reverse break-up fee, while the uncertain value of Frontier’s stock exposes Spirit shareholders to significant risk. We hope the Spirit board will now recognize that ours is clearly a superior proposal and engage with us more constructively than they have to date.”

Northeast Alliance a sticking point

Spirit, however, chafed at the fact that JetBlue appears unwilling to pull away from its American Airlines partnership. In their letter to JetBlue’s Hayes, Gardner and Christie revealed that on April 25 Spirit had proposed that JetBlue commit to abandoning the NEA upon closure of a merger with Spirit in order to curry the favor of regulators. 

JetBlue’s offer, the duo said, was not appropriately responsive to that proposal. 

“Indeed, that response makes clear that JetBlue is unwilling to terminate the NEA — or to agree to any other remedies that might materially decrease the expected benefits to JetBlue from the NEA — to obtain clearance for an acquisition of Spirit,” the letter reads.

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