JetBlue offers to buy Spirit Airlines two months after announcing merger deal with Frontier

Spirit Airlines reported receiving a cash offer from JetBlue Airways.

Spirit Airlines reported receiving a cash offer from JetBlue Airways.

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JetBlue Airways made an unsolicited all-cash offer to acquire Spirit Airlines for just over $3.5 billion, two months after the Miramar-based carrier said it would merge with rival Frontier.

JetBlue’s offer is worth $33 per Spirit share, the Broward County airline said in a statement late Tuesday, which would make the offer about $3.6 billion.

This cash offer is a 40% bonus to Frontier’s $2.9 billion cash and stock offer for Spirit, which is worth about $23 per share based on Frontier’s current stock price of $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 per share. At the end of trading on Tuesday, after news of JetBlue’s offer, shares of Spirit soared 22% to close at $26.91 a share.

Although JetBlue’s offer came as a surprise to Spirit, the airline’s board of directors will review it, but there is no deadline to move forward with either bidder. Meanwhile, the effects of a Spirit sale or merger on the airline’s 3,400 employees in South Florida and on airfares in the region remain in the balance. Ultimately, federal regulators would have to approve any deal Spirit and a partner airline agreed to, and that evaluation would take at least 18 to 24 months.

“Spirit’s Board of Directors will work with its financial and legal advisors to evaluate JetBlue’s proposal and pursue a course of action that determines what is in the best interest of Spirit and its shareholders,” 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 will respond in a timely manner.”

On Feb. 7, Spirit and Frontier said the two ultra-discount airlines had agreed to combine in a transaction in which Spirit shareholders would get 1.9126 Frontier shares plus $2.13 in cash for each Spirit share they own. At the time, the airlines said that once the deal was completed, Frontier would control 51.5% of Spirit’s stock, leading analysts and investors to speculate that Frontier would become the dominant airline.

With a possible bidding war for Spirit, the region seems likely to lose corporate jobs whatever the outcome, according to airline industry analysts. Frontier, as the majority shareholder, will likely keep its headquarters in Denver. JetBlue is based in Long Island City, New York, and will likely stay there.

In a statement to investors Tuesday, JetBlue said its offer to buy Spirit would be a win for budget-conscious travelers.

“Customers shouldn’t have to choose between a low fare and a great experience, and JetBlue proved that it’s possible to have both,” said JetBlue Chief Executive Officer Robin Hayes. “When we grow and present our unique value proposition on new routes, traditional airlines lower their fares and customers win with more options.”

But Henry Harteveldt, a travel industry analyst at San Francisco-based Atmosphere Research Group, said a JetBlue acquisition could be bad news for consumers, as Spirit and Frontier are ultra-low-cost carriers pushing lower airfares. JetBlue, on the other hand, sometimes matches Spirit and Frontier ticket prices, but doesn’t lower fares.

“Low-cost carriers are price leaders, above them are carriers like JetBlue, which I see as value-focused. They have lower than average airfares, but they are not price leaders,” Harteveldt said. “They focus more on product and service, plus better legroom, free Wi-Fi and other amenities.”

If Spirit’s board of directors chooses to close a deal with Frontier or JetBlue, any merger or sale would be subject to a review by the US Justice Department that could take up to two years or possibly longer. Under the Biden administration, the Justice Department said it will examine mergers and acquisitions with greater scrutiny.

“The Biden administration was very clear about its concern about mergers in very concentrated sectors,” Harteveldt said, noting that federal regulators may decide that a Spirit-Frontier combination of two low-cost 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 traditional brands like United and American Airlines, he said.

For its part, Frontier said Tuesday that a JetBlue takeover of Spirit would reduce competition between airlines and make air travel more expensive.

“Jet Blue acquires Spirit, that would mean the elimination of a low-fare airline from the US air landscape and that would lead to an increase in fares, something that the Department of Justice might not see favorably, “said Harteveldt.

“Spirit’s board of directors will have this in mind, and if they think the Frontier deal is more likely to go ahead, they might say to JetBlue, ‘Thanks, but no thanks.'”

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