On Monday, Spirit Airlines rejected a takeover bid from JetBlue Airways, saying that regulators would hardly approve the proposal.
In a letter to JetBlue, Spirit executives said they had decided that JetBlue’s takeover bid, which was updated on Friday, would hardly secure regulatory approval as long as the airline’s recently announced partnership with American Airlines was in effect. The Ministry of Justice and several states have sued to block this alliance, claiming that it is anti-competitive, and JetBlue has said they will not leave the partnership.
In a statement on Monday, the chairman of the board of Spirit, Mac Gardner, said that the company stood by its plan to merge with Frontier Airlines, an agreement that precedes JetBlue̵[ads1]7;s offer and which Spirit argued for reflected the best interests of long-term shareholders.
“After a thorough review and extensive dialogue with JetBlue, the board determined that the JetBlue proposal involves an unacceptable level of closure risk that will be assumed by Spirit shareholders,” Gardner said. “We believe that our pending merger with Frontier will launch an exciting new chapter for Spirit and will bring many benefits to Spirit shareholders, team members and guests.”
Spirit and Frontier, both low-cost airlines, announced a plan to merge in February. Then JetBlue went in with a bigger offer for Spirit, and surprised many industry analysts and experts. Both agreements will be subject to scrutiny by Biden administration regulators, who have expressed more skepticism about consolidation than their predecessors.
Some analysts claim that Spirit and Frontier are better suited to merge because they operate under similar “ultra-low-cost” business models, but have more extensive flights in different parts of the United States. A JetBlue-Spirit combination can be more difficult to achieve because the airlines’ business models are quite different. But the deal could allow JetBlue to compete more effectively with the country’s four dominant airlines.
JetBlue’s updated offer added a handful of concessions to meet Spirit’s regulatory approval concerns, including an offer to sell some assets from both airlines. JetBlue also said it would commit to selling Spirit assets in New York and Boston, markets at the heart of JetBlue’s partnership with American, known as the Northeast Alliance, in an attempt to get approval from the Department of Justice. JetBlue also said it would pay Spirit a $ 200 million fee if antitrust regulators blocked the deal.
Spirit’s management responded in a letter to JetBlue’s CEO on Monday, saying they did not believe the updated offer had a reasonable chance of success. Regulators, Spirit said, would probably be “very concerned” with the prospect that JetBlue’s offerings would result in higher costs, and later higher prices for consumers. Spirit said converting the seats, which are packed with seats, to JetBlue’s more spacious configuration would lead to higher prices, for example.
JetBlue said in response that both the offer and the Frontier agreement shared “a similar regulatory profile”, but that Frontier had not offered to sell assets or pay a breach fee. JetBlue also said that the value of Frontier’s cash-and-share agreement had faded due to the airline’s falling share price.
“Spirit shareholders would be better off with the security of our significant cash premium, regulatory obligations and reversal of breach fee protection,” JetBlue CEO Robin Hayes said in a statement on Monday.
JetBlue also accused Spirit of failing to provide it with adequate access to data on the low – cost carrier’s business while requesting “outstanding commitments” from JetBlue.
For JetBlue, the US partnership and the Spirit offer are opportunities to accelerate a planned expansion. JetBlue, which has long maintained a large presence at New York’s Kennedy International Airport, has been limited by street access at the region’s busy airports. In their partnership, JetBlue and American have agreed to sell each other’s flights, establish links between their frequent flight programs and take-off and take-off machines in the pool. It also allows JetBlue, which primarily flies in the US, to sell more international tickets on US planes.
A trial in the Ministry of Justice’s case against the alliance is scheduled for the end of September.
Representatives from American and Frontier declined to comment on Monday’s developments, but Stephen Johnson, a top US leader, said in a conversation with investor analysts and journalists last month that a JetBlue-Spirit deal would have no effect on the Northeast Alliance.
“It’s not going to change a bit the value we create for consumers in New York and Boston,” he said.