FORT LAUDERDALE, Fla. — South Florida-based discount carrier Spirit Airlines announced Monday it has rejected a $3.6 billion buyout bid by JetBlue Airways, saying its suitor failed to sufficiently address antitrust concerns.
Spirit said its board of directors decided to proceed with a previous offer by Frontier Airlines of Denver, a deal it hopes to close during the second half of this year.
“Spirit continues to believe in the strategic rationale of the proposed merger with Frontier and is confident that it represents the best opportunity to maximize long-term shareholder value,” H. McIntyre Gardner, chairman of the Spirit board, said in a statement early Monday. “After a thorough review and extensive dialogue with JetBlue, the board determined that the JetBlue proposal involves an unacceptable level of closing risk that would be assumed by Spirit stockholders.”
He said the Frontier deal “will start an exciting new chapter for Spirit and will deliver many benefits to Spirit shareholders, team members and guests.”
Spirit entered into a stock and cash merger deal on Feb. 7 with Frontier valued at $2.9 billion. Under the terms, Spirit stockholders would receive 1.9126 shares of Frontier plus $2.13 in cash for each share of Spirit stock they own.
Shortly thereafter, JetBlue jumped into the fray with an offer of its own that would fold Spirit’s planes, employees and routes into its operations.
Alliance with American a hurdle
But the principal sticking point for Spirit is JetBlue’s Northeast marketing alliance with American Airlines, which is currently the subject of a lawsuit brought by the U.S. Justice Department and six states. The complaint alleges the arrangement reduces competition for travelers flying in and out of various North cities. Under the JetBlue-American alliance, the two carriers market and sell each other’s tickets.
“We believe a combination of JetBlue and Spirit has a low probability of receiving antitrust clearance so long as JetBlue’s Northeast Alliance (NEA) with American Airlines remains in existence,” Gardner said in a letter co-signed by Spirit CEO Ted Christie to JetBlue Chairman Robin Hayes.
“As you know, Spirit and many other airline and air travel constituencies have publicly opposed the NEA on grounds that it is anticompetitive,” the letter says. “We struggle to understand how JetBlue can believe DOJ, or a court, will be persuaded that JetBlue should be allowed to form an anticompetitive alliance that aligns its interests with a legacy carrier and then undertake an acquisition that will eliminate the largest [ultra low-cost] carrier.”
JetBlue’s counter-offer
JetBlue late last week produced a second offer that Hayes said would address Spirit’s concerns. But Spirit said Monday the board found that offer to be insufficient as well, calling the revised proposal “illusory.”
The JetBlue sweeteners included a $33 cash offer to buy all of Spirit’s stock, a 47% premium over Spirit’s stock price of April 29, as well as a higher breakup fee to Spirit if the proposed buyout is blocked by regulators.
Another measure would be the divestiture of all Spirit assets in New York and Boston “so that JetBlue does not increase its presence in the airports covered by the NEA. The package would also include gates and assets at other airports, including Fort Lauderdale.”
Spirit and JetBlue consistently rank as the leading carriers in flights and passengers at Fort Lauderdale-Hollywood International Airport.
“Spirit shareholders would be better off with the certainty of our substantial cash premium, regulatory commitments, and reverse break-up fee protection,” Hayes said in a statement. “The Frontier transaction has a similar regulatory profile to ours but offers no divestiture commitment and no reverse break-up fee, while the uncertain value of Frontier’s stock exposes Spirit shareholders to significant risk”
Frontier, which last week reaffirmed its intent to combine with Spirit, had no immediate comment.
