JetBlue goes hostile in its takeover bid for Spirit Airlines.
JetBlue said Monday that it was taking its offer to acquire Spirit Airlines directly to that carrier’s shareholders, after Spirit’s board rejected a takeover proposal and decided to stick with its plan to merge with Frontier Airlines.
In a statement, JetBlue said it was offering $30 a share to buy all of Spirit’s outstanding stock, a move known as a tender offer. That share price, setting the total purchase price at more than $3.2 billion, was slightly less than it originally offered to Spirit.
Spirit’s stock closed at $19.27 per share on Monday following the announcement of JetBlue’s tender offer, an increase of 13.6 percent from its closing price on Friday. Spirit last week scheduled a vote on the merger with Frontier for June 10 and has urged shareholders to approve the deal.
JetBlue said it was willing to pay $33 a share, the price it initially offered last month, if Spirit cooperated and shared the same information about its business as it had with Frontier.
After JetBlue announced its tender offer, Spirit said its board would review the proposal and share its position with shareholders within 10 business days. The airline encouraged shareholders to take no action on JetBlue’s tender offer until that review is concluded.
JetBlue said it had filed a “vote no” proxy statement calling for Spirit shareholders to reject the Frontier merger. JetBlue said that its all-cash offer was currently worth 60 percent more than Frontier’s cash-and-stock proposal. Frontier’s share price has fallen by about a third since it announced its merger with Spirit, reducing the value of its bid.
Two weeks ago, Spirit’s chairman, Mac Gardner, said that “after a thorough review and extensive dialogue with JetBlue,” his company stood by its plan to merge with Frontier. He argued that it reflected the best interests of long-term shareholders, and he said Spirit had concluded regulators were unlikely to approve the JetBlue deal.
Spirit and Frontier, both low-fare airlines, announced a plan to merge in February. JetBlue stepped in last month with its own offer for Spirit. Either deal would come under U.S. government scrutiny, given the skepticism about industry consolidation by regulators appointed by the Biden administration.
JetBlue already faces an antitrust lawsuit by the Justice Department seeking to nullify an alliance between JetBlue and American Airlines in the Northeast, a deal that one official described last year as a “de facto merger.” The administration was particularly concerned with protecting JetBlue’s role as a source of competition to American and other dominant carriers. JetBlue has argued that a Spirit acquisition would allow it to quickly achieve a long-sought expansion and compete more effectively with those large airlines. Spirit’s board this month unanimously rejected JetBlue’s offer after determining that regulators would be unlikely to approve the deal as long as the alliance remains in place.
“It’s unlikely the D.O.J. or a court will be persuaded that JetBlue should be allowed to form an anticompetitive alliance that aligns its interest with a legacy carrier and then also undertake an acquisition that would eliminate the largest U.L.C.C. carrier,” Spirit’s chief executive, Ted Christie, said to investor analysts on a call this month, referring to his airline’s standing as an ultra-low-cost carrier.
JetBlue disagreed with that conclusion and said it would also pre-emptively divest from certain airports to address regulatory concerns. Frontier has not agreed to similar concessions, nor has it offered to pay a breakup fee if the merger falls through over antitrust concerns. JetBlue would pay Spirit $200 million if a deal failed for that reason.
“JetBlue offers more value — a significant premium in cash — more certainty and more benefits for all stakeholders,” Jetblue’s chief executive, Robin Hayes, said in a letter to Spirit shareholders on Monday. “Frontier offers less value, more risk, no divestiture commitments and no reverse breakup fee.”
The proposed merger between Spirit and Frontier has also spurred concerns. In March, several progressive lawmakers, including Senators Elizabeth Warren, Democrat of Massachusetts, and Bernie Sanders, independent of Vermont, expressed misgivings, warning that the merger could raise ticket prices and harm customer service. Last month, the Justice Department sent the two airlines “second requests” for information about their merger, a process that effectively ties up the deal until the companies answer the agency’s long list of questions.
JetBlue said Monday that Frontier and Spirit overlap on 104 nonstop routes, twice as many as are shared between JetBlue and Spirit.
A Spirit-Frontier merger would combine two budget carriers with strengths on opposite coasts. JetBlue’s offer could accelerate its plans to compete with the four big U.S. carriers — American Airlines, Delta Air Lines, United Airlines and Southwest Airlines — which have a combined 66 percent share of the domestic market. A combined Frontier and Spirit would control over 8 percent of the market; JetBlue and Spirit together would command more than 10 percent.
JetBlue also accused Spirit’s management of being blinded to the benefits of its offer by their relationship with Frontier’s leadership. Indigo Partners, a private equity firm that invests in budget airlines, owned a controlling interest in Spirit from 2006 to 2013, the same year it bought Frontier.
After taking Frontier public last year, Indigo has retained a controlling interest, and Bill Franke, a co-founder of Indigo, is Frontier’s chairman. Several members of Spirit’s board also have ties to Indigo, JetBlue said.
“Ask yourself a simple question: Why won’t the Spirit board engage with us constructively?” Mr. Hayes of JetBlue said in the Monday letter to Spirit shareholders. “The interests of Bill Franke’s Indigo Partners and the longstanding relationships between the two companies is the obvious answer.”