Spirit rejects US$3.6 billion offer, JetBlue now considering a hostile takeover bid

Spirit Airlines (Spirit) has rejected an offer of US$3.6 billion, US$33.00 per share, made by ultra-low-cost carrier JetBlue at the beginning of April this year. This offer is appreciably higher than the US$2.9 billon, then worth US$25.83 per share, cash and stock offer from Frontier Airlines (Frontier), announced in February this year. Spirit has chosen to continue negotiations with Frontier on the basis it considers the JetBlue merger would not get past antitrust regulations and therefore it is not worth considering.

As a counter to this, JetBlue has offered a US$200 million ‘compensation package’, US$1.80 per share, if the deal did not go through for antitrust reasons as a sweetener, which has also been rejected by the Spirit Board. JetBlue believes that the merger would produce savings of between US$600 million and US$700 million per annum once the merger was complete, enabling it grow in “focus cities” such as Los Angeles, Fort Lauderdale and Orlando in Florida, and San Juan, Puerto Rico, as well as in airports that are major hubs for the nation’s largest airlines, including those in Dallas, Houston, Chicago and Atlanta.

One of the principal reasons the Spirit Board feel the Frontier offer is more likely to pass antitrust regulations is that the two carriers have different regional strengths, while Spirit and JetBlue are both focused on the Eastern United States and, according to Cirium data, overlapped on 11% of routes during 2021. JetBlue is pushing to take on ‘the big four’ carriers, Delta, United, American and Southwest Airlines, which, combined, control approximately 80% of the U.S. passenger market.

“We believe a combination of JetBlue and Spirit has a low probability of receiving antitrust clearance so long as JetBlue’s Northeast Alliance (NEA) with American Airlines remains in existence,” Spirit said in a letter to JetBlue Chief Executive Robin Hayes on Monday, May 2.

After Spirit rejected the additional US$200 million compensation package, JetBlue issued a letter making it clear it was now considering a hostile takeover bid that it would take direct to Spirit shareholders. “While we would unquestionably prefer to negotiate a transaction with you, if you continue to refuse to constructively engage with us so that we can deliver this value to your stockholders, we are actively considering all other options available to us,” the letter said. JetBlue also argues in the letter that the Spirit-Frontier deal also faces regulatory challenges and that if it does not go through, Spirit shareholders would get nothing as Frontier is not offering a fee for a failed bid.