There’s a major development when it comes to Spirit Airlines’ future. 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 board rejects JetBlue’s merger offer
It has today been announced that Spirit’s board of directors has unanimously decided that JetBlue’s takeover offer does not constitute a “superior proposal.” The main reason for this determination is that Spirit has concerns about the transaction getting regulatory approval, so the transaction with Frontier represents the best opportunity to maximize value.
Spirit thinks that between JetBlue’s Northeast Alliance with American Airlines (which is already being reviewed by the DOJ), plus regulatory concerns about an ultra low cost carrier being brought “upmarket,” this deal being approved would be far from a sure bet.
Mac Gardener, the chairman of Spirit’s board of directors, wrote the following in a letter to JetBlue:
“Spirit continues to believe in the strategic rationale of the proposed merger with Frontier and is confident that it represents the best opportunity to maximize long-term shareholder value. After a thorough review and extensive dialogue with JetBlue, the Board determined that the JetBlue proposal involves an unacceptable level of closing risk that would be assumed by Spirit stockholders. We believe that our pending merger with Frontier will start an exciting new chapter for Spirit and will deliver many benefits to Spirit shareholders, Team Members and Guests.”
This means that Spirit and Frontier will continue to advance toward completing this transaction, which is expected to close in the second half of 2022. Of course this is subject to customary closing conditions, including the completion of ongoing regulatory reviews and approval by Spirit shareholders.
JetBlue tried to up its takeover offer
Shortly after Spirit announced it would move forward with Frontier, JetBlue revealed that it had tried to up its offer. Note that Spirit rejected the updated offer, so even this wasn’t enough for the airline:
- JetBlue offered a $200 million reverse break-up fee that would become payable to Spirit in the event that the JetBlue transaction was not consummated for antitrust reasons
- JetBlue offered a remedy package that included the divestiture of all Spirit assets in New York and Boston so that JetBlue does not increase its presence in airports covered by the Northeast Alliance; this package would have also included gates and assets at other airports, including Fort Lauderdale
This was in addition to JetBlue offering an all-cash premium, which the airline argues offered a 47-52% premium to the value of the Frontier transaction.
A Spirit & Frontier merger is better for consumers
From a consumer standpoint, I’m happy to see Spirit choosing to go with Frontier, as I don’t think JetBlue taking over Spirit would be good for consumers:
- On the one hand, I feel bad for JetBlue, in that the carrier has struggled to grow and hasn’t been able to benefit from any consolidation in the industry, due to its unique positioning, and not being in the right place at the right time
- On the other hand, Spirit and JetBlue are different enough so that I feel like a combined airline would have brought us the worst of both worlds
- While Spirit and Frontier are both ultra low cost carriers, they largely operate in different markets, complement one another well, and ultimately have to keep fares low to compete with the legacies, which have low basic economy fares in many markets
Spirit will be moving forward with the Frontier takeover bid, and will be rejecting JetBlue’s takeover bid. The primary reason that Spirit’s board doesn’t consider JetBlue’s offer to be superior is because Spirit has concerns about getting regulatory approval for that deal.
What do you make of Spirit moving forward with Frontier?