JetBlue Airways (NASDAQ: JBLU ) announced will launch a hostile takeover bid for Spirit Airlines (NYSE: SAVE ) after the ultra-low-cost carrier turned down JetBlue’s $3.6 billion bid to pursue a merger deal with Frontier Airlines (NASDAQ: ULCC ).
JetBlue on Monday offered Spirit shareholders $30 a share as part of a tender offer and in a proxy statement urged them to vote against the Frontier deal during a June 10 Spirit shareholder meeting.
The company also said its earlier offer of $33 per share is still on the table if Spirit decides to negotiate. Spirit’s shares closed Friday at $16.98.
Spirit airlines turned down the JetBlue bid earlier this month in favor of a $2.9 billion stock-and-cash deal it struck with Frontier in February. Spirit’s board said it doesn’t think U.S. regulators would approve an acquisition by JetBlue.
Deal
JetBlue has said acquiring Spirit would give it access to a large fleet of Airbus planes, trained pilots, and the ability to better compete against the “Big Four” U.S. airlines that control most of the U.S. market.
Spirit and Frontier say a combination of those two discount carriers would allow them to grow and compete more easily.
Either combination for Spirit would create the country’s fifth-largest carrier.
Spirit and Frontier operate a similar model of tighter seating, ultra-low fares, and fees for everything else, while JetBlue operates as a more full-service airline featuring free Wi-Fi, seat-back TVs, and a business class on several routes.
“Despite SAVE and Frontier having slight differences, the operating models between the two are similar enough to drive efficiencies,” Jefferies aviation analyst Sheila Kahyaoglu said in a note Monday.
“JBLU is a more direct competitor to the legacy network carriers, particularly in the premium markets where network carriers have shifted focus.”
She added that Frontier and Spirit would likely expand at the same rate whether they’re combined or separate “with the combination only improving operational efficiency and cost efficiencies with scale.”
Spirit’s Rejection
Spirit announced on May 2, 2022, that its members of the association determined that JetBlue’s offer did not represent a Superior Proposal under Spirit’s merger agreement with Frontier.
Instead, the Spirit board said it was sticking with a cash and stock deal it reached in January with Frontier. That deal was valued at that time at $25.83 for each Spirit share. But Frontier shares have since fallen.
Shares of Frontier were slightly higher in premarket trading Monday on news of JetBlue’s hostile takeover attempt, but even with the rise, its offer for Spirit is worth less than $20 a share. Shares of Spirit were also higher on the JetBlue news, while JetBlue shares were narrowly lower.
Both Frontier Airlines and JetBlue have been fighting vigorously for Spirit, underscoring the importance of the ultra-low-cost carrier to their growth plans.
Additionally, the merger with either Frontier or JetBlue would also allow the two rivals to challenge other major U.S. carriers and would create the fifth-largest airline in the country.
But Spirit CEO Ted Christie has raised questions over JetBlue’s actual intentions, saying he fails to see why would antitrust regulators approve the merger while JetBlue continues to deal with regulatory scrutiny over its separate deal with American Airlines (NASDAQ: AAL ).
“I have wondered whether blocking our deal with Frontier is, in fact, their goal,” said Christie.
