Spirit has just rejected JetBlue’s takeover bid once again.
In this post:
Basics of the Spirit, Frontier, and JetBlue situation
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 (not because Spirit doesn’t have an important position in the market, but rather because JetBlue offers a unique inflight experience).
JetBlue didn’t want to take no for an answer. So with Spirit’s board rejecting JetBlue’s offer, the airline instead decided on a hostile takeover approach, by writing directly to Spirit shareholders and encouraging them to vote in favor of a JetBlue takeover. There’s an update this morning from Spirit’s board of directors, and it shouldn’t come as a surprise.
Spirit board unanimously rejects JetBlue again
Spirit’s board of directors has unanimously rejected JetBlue’s updated takeover bid, arguing that this is not in the best interest of Spirit and its shareholders. As before, Spirit’s board remains opposed to this because “the JetBlue transaction faces substantial regulatory hurdles, especially while the Northeast Alliance with American Airlines remains in effect.”
Here’s how Mac Gardner, chairman of Spirit’s board of directors, describes the board’s position:
“JetBlue’s tender offer has not addressed the core issue of the significant completion risk and insufficient protections for Spirit stockholders. Based on our own research and the advice of antitrust and economic experts, our view is that the proposed combination of JetBlue and Spirit lacks any realistic likelihood of obtaining regulatory approval, while our company faces a long and bleak limbo period as we await resolution.
In that scenario, a $1.83 per share reverse break-up fee will not come close to adequately compensating Spirit stockholders for the significant business disruption Spirit will face during what JetBlue acknowledges will be a protracted regulatory process. Our pending merger with Frontier is advancing as planned, and we continue to recommend that Spirit stockholders vote FOR the merger with Frontier on June 10th, as we believe the combination of these two ULCCs is the best way to deliver maximum value to Spirit stockholders.”
Spirit’s board of directors is also going after JetBlue (given the attack in the other direction), arguing that:
- JetBlue’s proposals are a cynical attempt to disrupt Spirit’s merger with Frontier, which JetBlue views as a competitive threat; JetBlue claims it has been interested in a merger with Spirit for “many years,” yet JetBlue waited until seven weeks after the announcement of the Frontier merger to submit an offer
- JetBlue’s focus on Spirit appears to be an attempt to distract from JetBlue’s own business being in disarray; JetBlue’s stock has fallen 34% since the date of JetBlue’s initial offer, and JetBlue runs last or near last when it comes to operational metrics in 2022 and for the past several years
- JetBlue argues that the “JetBlue Effect” has a positive impact on airfare, while Spirit believes that this model has significant defects, and overstates the impact JetBlue has on legacy carriers, when really it’s Spirit that continues to keep the legacy carriers in check
- JetBlue’s offer deprives Spirit shareholders of the long-term ability to participate in the upside from airline industry recovery and benefits from the Frontier transaction; Spirit shareholders would be capped at their value of $30 per share, while waiting up to two years to receive their cash, while the rest of the industry gets to participate in a recovery
Admittedly this decision continues to be up to shareholders and not the board. That being said, the board isn’t wrong, so I can’t imagine a majority of shareholders will want to go with the JetBlue option.
Bottom line
Given that JetBlue was essentially attempting a hostile takeover of Spirit, it’s not surprising to see Spirit’s board of directors once again rejecting JetBlue. JetBlue sure is coming across as desperate here, while I think Spirit’s board has valid concerns about the odds of this being approved. We’ll see how Spirit shareholders feel.
Here’s an idea, given that we’re currently seeing record high airfare — how about the government just not approve any further consolidation right now, and then that solves this whole dilemma? 😉
What do you make of this ongoing Spirit and JetBlue saga?
B6 is in full panic mode here. The combined NK/F9 will leapfrog them in size and relegate B6 to being an even smaller player than they already are. They can’t get planes and pilots to grow. Operations are a mess. I’m really wondering how they’re going to survive. I love their product but I don’t see how they can make it as a major player without more planes and routes (and of course fixing operations)....
B6 is in full panic mode here. The combined NK/F9 will leapfrog them in size and relegate B6 to being an even smaller player than they already are. They can’t get planes and pilots to grow. Operations are a mess. I’m really wondering how they’re going to survive. I love their product but I don’t see how they can make it as a major player without more planes and routes (and of course fixing operations).
Alaska buying VA out from under B6 really screwed them over. That was probably B6’s best shot at staying relevant.
"I can’t imagine a majority of shareholders will want to go with the JetBlue option." This is a huge and macro misunderstanding of shareholder desires then. Large shareholders (think Blackstone, Fidelity, PIMCO, JPM AM, etc) are in the business of making returns - nothing else. If a buyer comes with a 40% higher offer, historically, it's really hard to convince shareholders that it is a worse offer. Shareholders typically want to take their returns -...
"I can’t imagine a majority of shareholders will want to go with the JetBlue option." This is a huge and macro misunderstanding of shareholder desires then. Large shareholders (think Blackstone, Fidelity, PIMCO, JPM AM, etc) are in the business of making returns - nothing else. If a buyer comes with a 40% higher offer, historically, it's really hard to convince shareholders that it is a worse offer. Shareholders typically want to take their returns - especially in the airline industry. They aren't in it for the "long term share appreciation." they want their returns and they want to get out.
"The board isn't wrong" Is this a statement of fact? There are countless instances where a BoD made the wrong decisions for a company (Hewlett Packard in the 90s). You can't say boards are never wrong as a blanket statement.
"encouraging them to vote in favor of a JetBlue takeover" This is situationally incorrect and I believe a misunderstanding of what is happening. The proxy vote on June 10 is to vote in favor of or against a F9 takeover. B6 is encouraging shareholders to vote against a F9 takeover, not in favor of a B6 takeover (obviously that is the ultimate goal, but it is not what is happening yet). B6 is hoping to convince NK shareholders that their BoD was not acting in their best interest.
I'm also incredibly surprised this article doesn't discuss the regulatory difficulties of a F9 / NK merger. If one is to argue a B6 / NK acquisition is anti-competitive and unlikely to pass DoJ, you cannot go without discussing the possibility a F9 / NK merger being shut down by DoJ.
This article is a bit weak in my opinion.
This is good for consumers, especially in NYC and FLL
“ takeover approach, by writing directly to JetBlue shareholders and encouraging them to vote in favor of a JetBlue takeover.”
You mean writing directly to the Spirit shareholders- pls correct
And why would the shareholders reject an offer that is about 40% more lucrative for them than Frontier’s?
Lucky... are you aware of Indigo? You understand what is going on here? You know that both Frontier and Spirit are part of Indigo? There is so much corruption internally with Spirit, and it seems the general public has no idea. Spirit is wrong...look how media can spin facts. Spirit and Frontier overlap in 48% of their network. How is this good for anyone except for the few people at Indigo? Pilots lose out on...
Lucky... are you aware of Indigo? You understand what is going on here? You know that both Frontier and Spirit are part of Indigo? There is so much corruption internally with Spirit, and it seems the general public has no idea. Spirit is wrong...look how media can spin facts. Spirit and Frontier overlap in 48% of their network. How is this good for anyone except for the few people at Indigo? Pilots lose out on a ton of money...shareholders lose out... two LCC;s becoming one absolutely destroys competition where in B6 and NK merge you still have plenty of LCCs that can compete. The media can twist the minds and the facts for all. Jetblue has had their issues but the media has picked on them hard. They do have the best economy product, they do have excellent service once onboard. The company is making adjustments to fix operations and even hiring at mass rates while reducing their schedule in order to become a much more reliable airline.
A combined NK/F9 just looks good on paper... and for some reason the media likes it even though these 2 are the true worst airlines in the US, not B6.
"these 2 [NK and F9] are the true worst airlines in the US, not B6.
Everyone has their own criteria to judge "worst" but mine is operations. Being reasonably reliable is table stakes for me. I don't care how nice the cabins are or how great the service if I can't count on them. By that definition, B6 is the worst.
I cheerfully concede that they do some things very well, and I wish them...
"these 2 [NK and F9] are the true worst airlines in the US, not B6.
Everyone has their own criteria to judge "worst" but mine is operations. Being reasonably reliable is table stakes for me. I don't care how nice the cabins are or how great the service if I can't count on them. By that definition, B6 is the worst.
I cheerfully concede that they do some things very well, and I wish them well. But as others here have said, B6 needs to look inward before any potential suitor will consider them ready to move outward.
How reliable is the NK operation?
Go ahead...I'll wait.
I will admit to being a big fan of B6 since I started flying them close to 20 years out of BOS. Always loved the legroom, in-seat entertainment, free snacks and WiFi. Have flown Mint a dozen times which never gets old.
They need to get their house in order. The public is not so enamored with flying them these days. I understand the strategy of taking over Spirit but just no. Spirit’s board...
I will admit to being a big fan of B6 since I started flying them close to 20 years out of BOS. Always loved the legroom, in-seat entertainment, free snacks and WiFi. Have flown Mint a dozen times which never gets old.
They need to get their house in order. The public is not so enamored with flying them these days. I understand the strategy of taking over Spirit but just no. Spirit’s board is right on. Not gonna fly, Focus on your operations and culture first, B6.
I hope Breeze keeps expanding with more flights out of PVD. Simple pricing and reasonable up charge for “Nicest” seat.
It’s up to the shareholders, not the board. You act as if this ends the “hostile takeover” bid which seems to indicate a fundamental misunderstanding of what is happening. I suggest more research on your part.