JetBlue really wants to buy Spirit Airlines, it seems, and is now going directly to shareholders rather than the board of directors.
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Why Spirit rejected JetBlue’s takeover bid
In February 2022 it was announced that Frontier Airlines intended to acquire Spirit Airlines. Then in April 2022, JetBlue Airways swooped in and also made a bid to acquire Spirit Airlines, in what the airline positioned as a superior proposal. Spirit ended up rejecting JetBlue’s takeover bid, not because the offer isn’t better (in theory), but rather because it provides more uncertainty.
While JetBlue’s offer is almost unarguably better on paper, the catch is that Spirit has concerns about getting regulatory approval for this merger. The way Spirit views it, regulators would view these two deals differently. Two (mostly complementary) ultra low cost carriers merging is different than JetBlue taking over an ultra low cost carrier and probably raising fares (after all, many of us hope that JetBlue won’t become Spirit).
Even after the initial offer, JetBlue tried to provide more assurance by offering a $200 million reverse break-up fee that would become payable to Spirit in the event that the JetBlue transaction wasn’t finalized due to antitrust reasons.
Of course that’s a nice gesture, and being paid $200 million for the deal not closing would be better than nothing. But at that point odds are that the Frontier deal wouldn’t happen either, or at a minimum Frontier could lower its bid, since there would be less competition. So I can appreciate Spirit’s concern here.
JetBlue’s letter to Spirit shareholders
JetBlue doesn’t seem to want to take “no” for an answer, and the airline has now published an open letter to Spirit shareholders, calling into question the motives of Spirit’s board of directors. This is an unconventional approach for an airline to take in a situation like this, but it sure is interesting to read. The letter reads as follows, in part:
We believe the Spirit Board of Directors has failed to act in your best interests by refusing to engage constructively on our clearly superior proposal to acquire Spirit.
JetBlue offers more value – a significant premium in cash – more certainty, and more benefits for all stakeholders. Frontier offers less value, more risk, no divestiture commitments, and no reverse break-up fee, despite more overlap on non-stop routes and their own regulatory challenges.
Yet the Spirit Board failed to provide us the necessary diligence information it had provided Frontier and then summarily rejected our proposal, which addressed its regulatory concerns, without asking us even a single question about it. The Spirit Board based its rejection on unsupportable claims that are easily refuted.
Ask yourself a simple question: why won’t the Spirit Board engage with us constructively? The interests of Bill Franke’s Indigo Partners and the long-standing relationships between the two companies is the obvious answer.
Given the Spirit Board’s unjustified refusal to engage, we have decided to bring our proposal directly to the Spirit shareholders, and we urge you to vote “AGAINST” the Frontier transaction at Spirit’s upcoming special meeting. This will send a message to the Spirit Board that you want it to negotiate with us in good faith.
JetBlue decreases Spirit purchase offer
Interestingly while trying to woo Spirit shareholders, JetBlue has also sort of decreased its offer for buying Spirit. JetBlue initially offered $33 per Spirit Airlines share.
Now JetBlue is only promising $30 per share. However, if “Spirit shareholders vote against the transaction with Frontier and compel the Spirit Board to negotiate in good faith,” JetBlue “will work towards a consensual transaction at $33 per share, subject to receiving the information to support it.”
Bottom line
JetBlue really wants to buy Spirit, and I’m still not really sure I understand why, as the two airlines don’t seem like a great fit. JetBlue’s best bet would have been acquiring Virgin America years ago, but JetBlue lost out to Alaska Airlines there.
With JetBlue’s offer having been rejected by Spirit, the airline has now written a letter directly to Spirit shareholders asking them to vote against Frontier’s takeover bid. At the same time, JetBlue has decreased its offer from $33 to $30 per share, but it’s stated that the airline will work toward still offering $33.
If JetBlue actually wants this to work, it seems the airline should increase its break-up fee in the event there’s no regulatory approval. But I suspect JetBlue also knows that there’s significant risk there.
What do you make of JetBlue’s strategy here?
I’m still perplexed why B6 and AS don’t pursue a merger. I get that B6/NK have an all Airbus fleet, but nothing else about this acquisition makes sense. B6 leadership say they will divest of Spirit’s NYC assets and reduce their South Florida presence… this is terrible for consumers in these 2 markets as NK keeps fares competitive in South FL and NYC (I fly in both markets frequently). Just do a check on airfares...
I’m still perplexed why B6 and AS don’t pursue a merger. I get that B6/NK have an all Airbus fleet, but nothing else about this acquisition makes sense. B6 leadership say they will divest of Spirit’s NYC assets and reduce their South Florida presence… this is terrible for consumers in these 2 markets as NK keeps fares competitive in South FL and NYC (I fly in both markets frequently). Just do a check on airfares on EWR/LGA routes where Spirit flies vs. routes they don’t and see for yourself.
… Whereas a B6/AS merger would combine 2 airlines with similar business model and strengthen their route map (B6 strength in Eastern US, AS strength in Western US). I get the Airbus / Boeing fleet inconsistency, but everything else about this potential merger makes sense, not to mention it’s good for consumers. SMH…
Hope they don’t end up buying them. This sort of feels out of character for JetBlue, having found a unique niche between being a LCC and FSC. I’d rather they just stick to what they’re doing and not do something crazy like this. Plus, I’ll miss the unique yellow taxicab livery. We need more color in the sky.
The "natural fit" argument doesn't make sense to me in this scenario. JetBlue is not intending to merge with Spirit, they are buying them. They are retrofitting the aircraft and building their network. The only parts of Spirit that would potentially be maintained are maintenance and leasing contracts which aren't customer facing anyway.
I bet it’s going to be just like Alaska and Virgin America, and I remember how sad that was, even if Virgin never made money and didn’t have much of a future on their own. Mergers suck in general. Fewer choices, higher prices, less variety of liveries on the ramp, etc. Does JetBlue really need Spirit?
JetBlue is dealing with a lot of operational issues right now which are largely due to lack of planes and staff. Neither of these issues can be resolved quickly. They have planes on order but they aren’t coming for a few years and can’t be moved up. All airlines are facing the same struggles hiring new staff, but it’s a particularly dire problem for JetBlue.
Acquiring Spirit is the quickest and easiest way to...
JetBlue is dealing with a lot of operational issues right now which are largely due to lack of planes and staff. Neither of these issues can be resolved quickly. They have planes on order but they aren’t coming for a few years and can’t be moved up. All airlines are facing the same struggles hiring new staff, but it’s a particularly dire problem for JetBlue.
Acquiring Spirit is the quickest and easiest way to address those issues quickly. Even if that wasn’t the case, JetBlue knows that Spirit merging with Frontier could lead to its ultimate demise. They are doubling down on Spirit because they see their survival at stake.
Ben, I love you, but I’m an M&A lawyer who works with public company deals and JetBlue is not “attacking” Spirit’s board here. This is exactly what you would expect JetBlue to do if they have determined they really want Spirit and/or don’t want Spirit to merge with Frontier. You always go to the board of the target first, but if they don’t agree, then the next step is make an offer directly to the...
Ben, I love you, but I’m an M&A lawyer who works with public company deals and JetBlue is not “attacking” Spirit’s board here. This is exactly what you would expect JetBlue to do if they have determined they really want Spirit and/or don’t want Spirit to merge with Frontier. You always go to the board of the target first, but if they don’t agree, then the next step is make an offer directly to the shareholders. Recently that last step has been less common (it was all the rage in the ‘80s) since usually the potential target takes the offer, but the circumstances of the airline industry make it not surprising we have gotten to the hostile takeover phase. Another factor is that, while the board is somewhat independent, I’m sure the executives at Spirit would much rather do the Frontier offer, since they are much more operationally similar and would provide more opportunity for those executives to maintain their jobs. The JetBlue offer is almost solely due to their need for planes and pilots and the reality that they are probably dead if the Spirit/Frontier merger succeeds.
Furthermore, far from not being enough, the $200m break fee in the original B6 offer already seemed very high to me. Based on a quick search, there are about 108.62m shares of Spirit issued and outstanding, which made the $33/share offer a total offer of around $3.6b, making the $200m regulatory break fee around 5.5%. I have done public M&A deals in the utilities space where, in addition to getting antitrust approval you also have to get approval from the utilities commissions in every state the target utility operates (in one case as much as 5 states). The state regulatory approvals take at least a year to go through, if not more, whereas even a complicated antitrust approval process shouldn’t take more than 6 months. As a result, the regulatory break fees on utilities deals are among the highest out there, and even then, the target started negotiations at 3.5% on a $5.7b deal ($199.5m regulatory break fee) and we got them down to 2%, which was still pretty high.
As you note, if JetBlue doesn’t get antitrust approval to acquire Spirit, it’s highly unlikely that Frontier would (remember that JetBlue/Frontier will be taking the lead on obtaining regulatory approvals and can make concessions as necessary). Furthermore, it’s arguable that JetBlue would be less problematic as an acquirer from an anti-trust perspective because they really only want the assets of Spirit. A Spirit-Frontier merger would essentially consolidate the ULCC market into one entity with only Allegiant left to compete. Regardless, based on my experience, the JetBlue break fee offer was already very high and I get why they are going straight to the Spirit shareholders now.
In a funny coincidente, Azul Airlines ( created by the former CEO of Jetblue) also tried to acquire Latam Airlines in a really nasty way.
How about we take airline mergers off the table entirely instead? Airfares are through the roof as the big 3 did not save for a rainy day, as they say to us consumers. We're paying more to travel while bailing them out with our taxes. Let's at least not consolidate further - that's not ever resulted in better service or fares.
When did not taking "no" for an answer become a crime? I expected this to happen. Based on Phil LeBeau's comment on CNBC at the time of the initial JetBlue offer, Spirit overlaps on almost twice as many Frontier routes as JetBlue routes, so as I understand completion criteria, the Spirit/JetBlue combination possibly has a better chance to get a regulatory pass than does the Spirit/Frontier tie-up.
What happened with JetBlue and Virgin America...
When did not taking "no" for an answer become a crime? I expected this to happen. Based on Phil LeBeau's comment on CNBC at the time of the initial JetBlue offer, Spirit overlaps on almost twice as many Frontier routes as JetBlue routes, so as I understand completion criteria, the Spirit/JetBlue combination possibly has a better chance to get a regulatory pass than does the Spirit/Frontier tie-up.
What happened with JetBlue and Virgin America has absolutely nothing to do with what's happening now. That's water under the bridge.
What could turn out to be interesting is if enough Spirit shareholders tender their shares, or if JetBlue manages to buy enough stock on the open market (which it could certainly do, and I'm guessing already is) that it would end up with a significant share in a newly merged Frontier/Spirit. Maybe all three could eventually tie-up?
JetBlue is in pure desperation mode. They’re throwing everything at the wall and seeing what sticks.
They're just trying to show the Spirit shareholders that they have Spirit too
It's like watching Kmart try to take over Sears.
FYI - Sears owns K-Mart (what's left of it).
It’s not hard to understand why Jetblue really really wants Spirit. Airplanes, Pilots, and to diversify ops away from the NE. It’s only going to get harder to get pilots as the Big 3 recover and waiting for aircraft slots will take close to a decade.
Jetblue can add more flights to its network with bases in DFW/ORD/DTW, as well with LAS. Adding more mint flights while also expanding the basic core operations.
...It’s not hard to understand why Jetblue really really wants Spirit. Airplanes, Pilots, and to diversify ops away from the NE. It’s only going to get harder to get pilots as the Big 3 recover and waiting for aircraft slots will take close to a decade.
Jetblue can add more flights to its network with bases in DFW/ORD/DTW, as well with LAS. Adding more mint flights while also expanding the basic core operations.
Jetblue I’m sure feels to grow “organically” would be a lot slower and would cause two competitors to leap frog them.
No where has jetblue said they would close down bases or shut down routes, yet they need to grow to meet the NEA requirements and other network needs.
A Jetblue/Spirit tie up might not seem like a the best but in todays airline environment it’s just the start where things might not make sense. Pilots and aircraft, as with other staffing are critical in this recovery and jetblue wants this bad.
The points that jetblue has made do make ya wonder how many deals between the boards are known and unknown between Spirit and Frontier. With Spirit not even really entertaining and taking offers seriously, makes ya wonder. But ultimately it will come down the vote and if Spirit shareholders would be genuinely interested in what Jetblue has to say and their offer. Guess we will see jun 10