Spirit Airlines (SAVE) shares moved firmly higher Thursday after shareholders voted against the discount carrier's tie-up with Frontier Airlines (ULCC), paving the way for a $3.8 billion takeover by JetBlue (JBLU).
Spirit shareholders rejected Frontier's $19.99 per share bid for Spirit, which was pegged far lower than JetBlue's sweetened $33.50 per share offer but carries far more regulatory risk, in a vote that was completed late Wednesday.
Spirit will pay around $25 million in merger-related costs to Frontier, which said it was "disappointed" with the vote result, and will need to pay around $70 million more if it were to close a deal with JetBlue.
JetBlue will pay $2.50 per share of its proposed deal in cash once Spirit shareholders approve the takeover, with a so-called "ticking fee" of $0.10 per month, starting in January 2023 through closing, to compensate for the extra time needed to clear regulatory hurdles.
“We are excited to deliver this compelling combination that turbocharges our strategic growth, enabling JetBlue to bring our unique blend of low fares and exceptional service to more customers, on more routes,” said JetBlue CEO Robin Hayes. “We look forward to welcoming Spirit’s outstanding Team Members to JetBlue and together creating a customer-centric, fifth-largest carrier in the United States."
"Spirit and JetBlue will continue to advance our shared goal of disrupting the industry to bring down fares from the Big Four airlines," Hayes added. "This combination is an exciting opportunity to diversify and expand our network, add jobs and new possibilities for Crewmembers, and expand our platform for profitable growth.”
Spirit Airlines shares were marked 3.6% higher in early Thursday trading to change hands at $25.13 each following news of its agreement with JetBlue. Frontier jumped 4.4% to $11.76 while JetBlue was little-changed at $8.40 each.
Any potential takeover by JetBlue would likely face significant regulatory hurdles and a close look from the Department of Justice on the grounds that it could raise fares and limit customer choice.
To compensate for the regulatory risk, JetBlue has pledged to boost its 'reverse breakup fee' to around $350 million in the event that antitrust authorities fail to approve its proposed $3.7 billion merger.
That risk appears likely, given that the the Justice Department has already filed a lawsuit against JetBlue's northeast alliance with American Airlines (AAL), a tie-up the carrier says will remain in place if its allowed to complete its takeover of Spirit.
In late March, a group of lawmakers lead by Senators Elizabeth Warren and Bernie Sanders telling regulators the deal would "consolidate market power for the airlines and reduce choices for travelers."
"We are pleased that the merger agreement with Frontier has been terminated and we are engaged in ongoing discussions with Spirit toward a consensual agreement as soon as possible," JetBlue said in a statement.
