JetBlue makes cash bid to buy Spirit Airlines for $3.6B, aiming to thwart Frontier merger
JetBlue Airways has made an unsolicited all-cash offer to acquire Spirit Airlines for a little more than $3.5 billion, two months after the Miramar-based company said that it would be merging with discount airline rival Frontier.
JetBlue’s bid is worth $33 per share of Spirit’s stock, the Broward County airline said in a statement late Tuesday, which would make the offer roughly $3.6 billion.
That cash bid is about a 40% premium over Frontier’s $2.9 billion cash-and-stock offer for Spirit, which has a value of about $23 a share based on the current price of Frontier’s stock at $11.92 per share, the New York Times reported.
Since early February when Spirit and Frontier announced their intention to merge, Frontier’s stock price has fallen from $12.82 a share. At the end of trading Tuesday after JetBlue’s offer emerged, Spirit’s stock jumped 22% to close at $26.91 a share.
Although JetBlue’s offer came as a surprise to Spirit, the airline’s board will consider it but there’s no deadline to move forward with either bidder. Meanwhile, the effects of a Spirit sale or merger on the airlines 3,400 South Florida employees and customer airfares in the region remain hanging in the balance. Ultimately, federal regulators would have to approve any deal Spirit and an airline partner agreed upon and that evaluation would take at least 18 to 24 months.
“The Spirit Board of Directors will work with its financial and legal advisors to evaluate JetBlue’s proposal and pursue the course of action it determines to be in the best interests of Spirit and its stockholders,” Spirit said in its statement. “The Board will conduct this evaluation in accordance with the terms of the Company’s merger agreement with Frontier and respond in due course.”
On Feb. 7, Spirit and Frontier said that the two ultra-discount airlines had agreed to combine in a transaction in which Spirit shareholders would get 1.9126 shares of Frontier stock plus $2.13 in cash for each existing Spirit share they own. At that time, the airlines said once the deal was completed Frontier would control 51.5% of the Spirit stock, leaving analysts and investors to speculate Frontier would emerge as the dominant airline.
With a potential bidding war for Spirit, the region looks likely to lose corporate jobs no matter the outcome, airline industry analysts said. Frontier as the majority shareholder would likely keep its headquarters in Denver. JetBlue is based in Long Island City, New York, and would likely stay there.
In a statement to investors Tuesday, JetBlue claimed its offer to buy Spirit would be a victory for budget-conscious air travelers.
“Customers shouldn’t have to choose between a low fare and a great experience, and JetBlue has shown it’s possible to have both,” JetBlue CEO Robin Hayes said. “When we grow and introduce our unique value proposition onto new routes, legacy carriers lower their fares and customers win with more choice.”
But Henry Harteveldt, a travel industry analyst at Atmosphere Research Group based in San Francisco, said a JetBlue acquisition could be bad news for consumers, since Spirit and Frontier are ultra-low-cost airlines that push down airfares. JetBlue, on the other hand, sometimes matches the ticket prices of Spirit and Frontier, but does not drive down fares.
“Budget airlines are price leaders, above them are airlines like JetBlue, which I view as value-focused. They have lower-than-average airfares, but aren’t the price leaders; they don’t push the envelope in terms of pricing,” Harteveldt said. “They focus more on product and service; they offer better leg room, free Wi-Fi and other amenities.”
If Spirit’s board opts to close a deal with Frontier or JetBlue, any merger or sale would be subject to a review by the U.S. Department of Justice that would take up to two years or possibly longer. Under the Biden administration, the Justice Department has said it will look at mergers and acquisitions with more scrutiny.
“The Biden administration has been very clear that it’s concerned about mergers in highly concentrated industries,” Harteveldt said, pointing out that federal regulators may decide a Spirit-Frontier combination of two budget carriers on the East and West coasts is better for consumers. That’s because it would create the nation’s fifth-largest airline, and one better equipped to compete with legacy brands like United and American Airlines, he said.
For its part, Frontier said Tuesday if JetBlue ends up with Spirit that would reduce airline competition and make air travel more expensive.
“If JetBlue were to acquire Spirit, that would mean the elimination of a low-fare airline from the U.S. airline landscape and that would lead to higher fares, which the DoJ may not take kindly to,” Harteveldt said. “The Spirit board will have this in mind, and if they think the Frontier deal is more likely to go through, they may say, ‘Thanks but no thanks,’ to JetBlue.”
This story was originally published April 5, 2022 at 5:36 PM.
