Spirit Airlines Rejects JetBlue’s Hostile Takeover

The takeover bid was rejected once again by Spirit.

Basics of the Spirit, Frontier, and JetBlue situation

In February of 2022, it was announced that Frontier Airlines was going to acquire Spirit Airlines. In April of 2022, JetBlue Airways made a bid to acquire Spirit Airlines, which the airline said was a superior proposal.

The catch is that Spirit has concerns about getting regulatory approval for the merger, which is almost unarguably better on paper. Regulators would view these two deals differently if Spirit views them differently. The merging of two ultra low cost carriers is not the same as the merging of another ultra low cost carrier. Many of us hope that JetBlue won't become Spirit because they offer a unique inflight experience.

The airline didn't want to take no for an answer. The airline decided on a hostile takeover approach after the board rejected the offer, writing directly to the shareholders of the other company to encourage them to vote in favor of the takeover. It shouldn't come as a surprise that there is an update this morning from the board of directors.

Spirit board unanimously rejects JetBlue again

The board of directors of Spirit unanimously rejected the updated takeover bid from JetBlue because it was not in the best interest of the company and its shareholders. While the Northeast Alliance with American Airlines remains in effect, the board of Spirit remains opposed to this because it faces substantial regulatory hurdles.

Mac Gardner is the chairman of the board of directors.

“JetBlue’s tender offer has not addressed the core issue of the significant completion risk and insufficient protections for Spirit stockholders. Based on our own research and the advice of antitrust and economic experts, our view is that the proposed combination of JetBlue and Spirit lacks any realistic likelihood of obtaining regulatory approval, while our company faces a long and bleak limbo period as we await resolution.

In that scenario, a $1.83 per share reverse break-up fee will not come close to adequately compensating Spirit stockholders for the significant business disruption Spirit will face during what JetBlue acknowledges will be a protracted regulatory process. Our pending merger with Frontier is advancing as planned, and we continue to recommend that Spirit stockholders vote FOR the merger with Frontier on June 10th, as we believe the combination of these two ULCCs is the best way to deliver maximum value to Spirit stockholders.”

The board of directors of Spirit is going after the other side of the company, given the attack in the other direction.

• JetBlue’s proposals are a cynical attempt to disrupt Spirit’s merger with Frontier, which JetBlue views as a competitive threat; JetBlue claims it has been interested in a merger with Spirit for “many years,” yet JetBlue waited until seven weeks after the announcement of the Frontier merger to submit an offer
• JetBlue’s focus on Spirit appears to be an attempt to distract from JetBlue’s own business being in disarray; JetBlue’s stock has fallen 34% since the date of JetBlue’s initial offer, and JetBlue runs last or near last when it comes to operational metrics in 2022 and for the past several years
• JetBlue argues that the “JetBlue Effect” has a positive impact on airfare, while Spirit believes that this model has significant defects, and overstates the impact JetBlue has on legacy carriers, when really it’s Spirit that continues to keep the legacy carriers in check
• JetBlue’s offer deprives Spirit shareholders of the long-term ability to participate in the upside from airline industry recovery and benefits from the Frontier transaction; Spirit shareholders would be capped at their value of $30 per share, while waiting up to two years to receive their cash, while the rest of the industry gets to participate in a recovery

The decision is up to the shareholders and not the board. The board isn't wrong, so I can't imagine a lot of shareholders will want to go with the JetBlue option.

Bottom line

It's not surprising to see the board of directors reject a hostile takeover of the company again. I think the board of Spirit has valid concerns about the chances of this being approved, and that JetBlue is coming across as desperate. We will see how the shareholders feel.

We are currently seeing record high airfare, so how about the government not approve any further consolidation right now?

What do you think about this ongoing saga?