Spirit Airlines rejects JetBlue’s offer

Spirit Airlines rejects JetBlue’s offer

Spirit Airlines on Monday rejected a takeover bid from JetBlue Airways, saying regulators were unlikely to approve the proposal.

In a letter to JetBlue, Spirit executives said they had determined that JetBlue’s takeover offer, which was updated Friday, would likely not win regulatory approval while that airline’s recently announced partnership with American Airlines was in place. The Justice Department and several states have sued to block the alliance, saying it is anticompetitive, and JetBlue has said it will not leave the partnership.

In a statement Monday, Spirit Chairman Mac Gardner said the company supported its plan to merge with Frontier Airlines, a deal that predated the JetBlue offer and that Spirit said reflected the best interests of shareholders in the long run. term.

“After a thorough review and extensive dialogue with JetBlue, the board determined that JetBlue’s proposal involves an unacceptable level of closure risk that would be borne by Spirit shareholders,” said Mr. Gardner. “We believe our pending merger with Frontier will start an exciting new chapter for Spirit and provide many benefits to Spirit shareholders, team members and guests.”

Spirit and Frontier, both low-fare carriers, announced a plan to merge in February. JetBlue then stepped in with a higher bid for Spirit, surprising many analysts and industry insiders. Both deals would face scrutiny from regulators in the Biden administration, who have expressed more skepticism about consolidation than their predecessors.

Some analysts argue that Spirit and Frontier are better suited to merge because they operate under similar “ultra-low-cost” business models but have longer flights in different parts of the United States. A JetBlue-Spirit combination could be harder to pull off because the airlines’ business models are quite different. But the deal could allow JetBlue to compete more effectively against the country’s four dominant airlines.

JetBlue’s updated offer added a handful of concessions to address Spirit’s concerns about regulatory approval, including an offer to sell some assets of both airlines. JetBlue also said it would commit to selling Spirit’s assets in New York and Boston, markets at the heart of JetBlue’s partnership with American, known as the Northeast Alliance, in an effort to win Justice Department approval. JetBlue also said it would pay Spirit a $200 million fee if antitrust regulators blocked the deal.

Spirit leadership 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, are likely to be “very concerned” that JetBlue’s offer will result in higher costs and, consequently, higher fares for consumers. Spirit said converting its planes, which are densely packed with seats, to JetBlue’s roomier configuration would result in higher prices, for example.

JetBlue said in response that both its offer and the Frontier deal shared “a similar regulatory profile” but that Frontier had not offered to sell assets or pay a breakup fee. JetBlue also said the value of the Frontier cash-and-stock deal had vanished as that airline’s stock price fell.

“Spiritual shareholders would be better off with the certainty of our substantial cash premium, regulatory commitments and reverse breakage fee protection,” JetBlue Chief Executive Officer Robin Hayes said in a statement Monday.

JetBlue also accused Spirit of not giving it enough access to data about the low-cost carrier’s business while asking for “unprecedented commitments” from JetBlue.

For JetBlue, the US partnership and Spirit’s 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 gate availability at the region’s busy airports. In their partnership, JetBlue and American agreed to sell flights to each other, link their frequent-flyer programs and takeoff and landing slots. It also allows JetBlue, which flies primarily within the United States, to sell more international tickets on American planes.

A trial in the Justice Department’s case against the alliance is scheduled for late September.

Representatives for American and Frontier declined to comment on Monday’s events, but Stephen Johnson, a top US executive, said in a call with investor analysts and reporters last month that a JetBlue-Spirit deal would have no effect on Northeast. Alliance.

“It’s not going to change one bit the value we create for consumers in New York and Boston,” he said.

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