After a prior arrangement between Spirit and Frontier Airlines fell through on Wednesday, JetBlue and Spirit announced a $3.8 billion merger agreement. The newly combined airline will be the fifth-largest in the US, possibly posing a threat to the “Big Four” airlines’ hegemony.
The plan was turned down by Spirit’s shareholders in favor of JetBlue’s more generous proposal. For months, JetBlue and Frontier have been wooing Spirit in an effort to merge with it and form a larger low-cost carrier that may lower the cost of plane tickets.
But getting to today’s announcement has been difficult. Frontier announced in February that it would be purchasing Spirit for $2.9 billion in cash and equity. JetBlue, however, had its own plans for Spirit, and in April it made an all-cash bid of $3.6 billion. The airline went so far as to offer a $200 million breakup payment in the event that antitrust concerns stopped the merger from taking place.
Despite this, Spirit nevertheless rejected the agreement, mostly due to JetBlue’s North American Alliance (NEA) with American Airlines. The board gave two reasons for rejecting the JetBlue offer: antitrust concerns and “an unacceptable amount of closure risk” to its shareholders. Then JetBlue launched a hostile acquisition, decreasing its offer to $30 per share but still indicating it would be open to a $33 per share deal that was done amicably.
Spirit resisted a hostile acquisition and finally withdrew from talks with Frontier. The boards of directors of both Spirit and JetBlue approved the amended merger deal today, valued at $33.50 per share, giving the merged airline an enterprise value of $7.6 billion.
JetBlue CEO Robin Hayes stated in a statement that Spirit and JetBlue “will continue to promote our common aim of disrupting the market to drive down rates from the Big Four airlines.”
Due to antitrust concerns, Spirit Airlines now finds itself in the unusual position of having to persuade shareholders to approve a merger that it had previously rejected. Spirit CEO Ted Christie remarked on CNBC this week that “a lot has been said over the previous several months clearly, always with our stakeholders in mind.” We’ve been talking to JetBlue employees, and they have a lot of interesting ideas about how to go with it.
Antitrust authorities as well as shareholders must still approve the transaction. Additionally, it occurs during a summer that has seen a spike in flight cancellations and delays, raising worries in Washington and sending passenger complaints through the roof.