Spirit Airlines on Monday rejected a takeover bid from JetBlue Airways, saying the proposal would hardly be approved by regulators.
In a letter to JetBlue, Spirit executives said they had stated that JetBlue’s takeover bid would hardly be approved as long as this airline’s recently announced partnership with American Airlines was in effect. A recent statement from JetBlue “makes it clear” that the airline is not willing to end this partnership, known as the Northeast Alliance, Spirit said in the letter. The Department of Justice and several states have sued to block the JetBlue-American partnership with arguments that it is anti-competitive.
In a statement, the chairman of Spirits’ board of directors, Mac Gardner, said the company stood by its plan to merge with Frontier Airlines, an agreement that precedes JetBlue’s offer and which Spirit claimed represents the best interests of long-term shareholders.
“After a thorough review and extensive dialogue with JetBlue, the Board of Directors determined that the JetBlue proposal involves an unacceptable level of closure risk that Spirit shareholders would assume,” said Mr. Gardner. “We believe that our pending merger with Frontier will launch an exciting new chapter for Spirit and will provide many benefits to Spirit shareholders, team members and guests.”
Spirit and Frontier, both low-cost airlines, had announced a plan to merge in February. Then JetBlue stepped in with a major offering on Spirit last month. Both agreements will be subject to scrutiny by Biden administration regulators, 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 a similar “ultra-low-cost” business model, but have more extensive flights in different parts of the United States. A combination of JetBlue-Spirit can be harder 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.
Spirit said regulators were likely to be “very concerned” about the prospect that JetBlue’s offerings would result in higher costs and subsequently higher prices for consumers. For example, Spirit said that converting Spirits’ seats, which are tightly packed with seats, to JetBlue’s more spacious configuration would result in higher prices.
In its response Monday, JetBlue said it would offer to divest Spirit’s assets in New York and Boston, two markets that regulators have expressed concern about in their lawsuit seeking to crack down on the Northeast Alliance. JetBlue also argued that both its offer and the Frontier agreement shared “a similar regulatory profile”, but that Frontier has not offered to divest assets or pay a breach fee. JetBlue also said the value of Frontier’s cash-and-share deal has faded due to the airline’s falling share price.
“Spirit shareholders would be better off with the certainty of our significant cash premium, regulatory obligations and reverse breakup fee protection,” JetBlue CEO Robin Hayes said in a statement Monday.
JetBlue accused Spirit of failing to provide it with adequate access to data on the low-cost carrier’s business while requesting “unprecedented commitments” from JetBlue.