Well, this is awkward. There is a long-running love triangle between US budget airlines. On Thursday, Spirit Airlines agreed to a cash offer from JetBlue valuing it at $7.6bn. It represents a victory for JetBlue, which has been desperately trying to break up Spirit’s agreed all-stock merger with Frontier Airlines.
That deal would have combined the two largest US “ultra-low cost” brands. Spirit’s board had long favoured that tie-up to the point where its public relations campaign included harshly excoriating the overtures of JetBlue.
At one point, Spirit accused the New York based airline of “scurrilous rhetoric” while giving detailed reasons why US regulators would never approve a JetBlue acquisition. But we can all say things we regret in the heat of the moment.
Spirit shareholders have finally got the deal they preferred. If it fails to close on competition grounds, they will not be able to say they were not warned.
Frontier and JetBlue each hoped to combine with Spirit to take on the US oligopoly in the sky that consists of American, United, Delta and Southwest. As it happens, JetBlue has an existing alliance with American which the Department of Justice is already challenging. JetBlue is now about to open a second front in that war.
JetBlue insists that its own record as a disrupter will persuade regulators. It has promised goodies to Spirit shareholders meanwhile. It is paying $2.50 per share to shareholders while they wait for regulatory approval. This is either a down payment on the buyout price or a termination fee. JetBlue has also committed, with some limitation, to divesting routes if so ordered.
The Spirit board fought hard to preserve the original Frontier merger. That reflected contractual obligations to Frontier, though JetBlue accused the board of self-interest.
No more. Spirit shareholders have the chance for a high-premium cash bid or a small consolation payout. JetBlue investors have made their own mute commentary on the bidding war. The shares have sunk 45 per cent so far this year.
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