Spirit Airlines said Monday that it still supports Frontier Airlines’ $2.9 billion takeover bid for the airline, saying it was more likely to win regulatory approval than JetBlue’s competing $3.6 billion offer.
Spirit said antitrust regulator JetBlue is unlikely to approve the proposal because JetBlue has an alliance with American Airlines in the Northeast, a deal the Justice Department is suing to block.
“We struggle to understand how JetBlue can believe” that the Justice Department or a court would let JetBlue make a deal with American, then buy Spirit, eliminating the nation’s largest low-cost airline, Spirit. The board said in a letter to the directors of JetBlue.
JetBlue shrugged off Spirit’s idea, after specifically promising to make concessions designed to ensure regulatory approval of its proposal last week. JetBlue’s CEO was raising the prospect of a hostile takeover bid.
Shares of Miramar, Florida-based Spirit sank more than 9%. Shares of New York-based JetBlue gained about 3%, while shares of Denver-based Frontier fell 4%.
The development reversed from last month, when Spirit said that after speaking with financial and legal advisors, its directors believed JetBlue’s offering could “reasonably” be the better of the two deals.
Spirit said its board continues to unanimously support the bid made by Frontier in February and sees it as the best way to maximize value. The airline expects an agreement with Frontier closing in the second half of the year.
The JetBlue-American cooperative venture in Boston and New York, called the Northeast Alliance, or NEA, was opposed by Spirit and other competitors long before Frontier’s February bid to buy Spirit.
JetBlue tried to satisfy regulatory concerns by offering to sell Spirit’s airport gates and takeoff and landing slots in New York and Boston, and perhaps Fort Lauderdale, Florida. However, Spirits’ board said on Monday that the revised proposal is unlikely to please regulators as the revised proposal still “clarifies that JetBlue is not ready to terminate the partnership with American”.
A Spirit-Frontier merger would merge the country’s two largest budget airlines and create the No. 5 US carrier. While Spirit and Frontier are similar “ultra low-cost” carriers, JetBlue operates on a business model that is more like the big four — American, Delta, United and Southwest. JetBlue will absorb the spirit and eliminate a budget airline that regulators believe helps keep ticket prices down.
JetBlue on Monday reiterated the argument that its offer is better for Spirit shareholders: It would pay them $33 per share in cash, compared to $22.42 per share compared to Frontier’s cash-and-stock offering, and JetBlue would pay $33 per share in cash. The offer was sweetened to include a $200 million break-up fee if the deal falters.
“We hope the Spirit Board will now recognize that our proposal is clearly a better proposition and engage more constructively with us,” said JetBlue CEO Robin Hayes.
In a five-page letter last week to Spirit chairman Mac Gardner and CEO Ted Christie, Hayes was far more blunt, even threatening. Hayes wrote that his airline’s disinvestment promises should give comfort to the Spirit leadership about JetBlue’s ability to win antitrust approval.
Hayes wrote, “While we would unquestionably love to negotiate a transaction with you, if you continue to refuse to engage constructively with us so that we can provide this value to your shareholders, we will not actively engage with you.” We are considering all other options available to us.”
Frontier CEO Barry Biffle said last week that a regulatory review of the Frontier-Spirits combination is “already well underway and several months ahead of any alternatives.”
When one analyst pressed Biffle about why Frontier had not campaigned more aggressively and publicly for its bid, he said, “we are very clear” about how Frontier sees the benefits of its proposal. “I don’t think we have to keep repeating it.”
