Spirit Airlines rejected an offer by JetBlue Airways, deciding to stay with the deal offered by Frontier Airlines.
In a letter released Monday from Spirit to JetBlue, the low-cost airline determined that the offer is not reasonably capable of being executed, as defined in Spirit’s merger agreement with Frontier Group Holdings, Inc.
“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,” said Mac Gardner, Chairman of the Board of Directors for Spirit Airlines.
According to JetBlue’s letter, a Spirit-Frontier agreement poses regulatory hurdles. If it fails, Spirit stockholders will not be left with anything because Frontier is not giving a break-up compensation.
Spirit and Frontier reached an agreement in February. Even though the airlines refer to their proposed deal as a merger, Spirit stockholders would be bought out, with each Spirit share receiving a stock-and-cash deal worth $25.83. Frontier’s stock is currently worth $22.42 per share, down from Friday’s closing price.
JetBlue announced in April that it had offered Spirit an all-cash offer valued at $33 per share. Although it never raised this offer price, it attempted to enhance the proposal by providing the $200 million break-up fee.
The low-cost carrier market is growing in the U.S. These carriers lean on a business model that sells low base fares but makes up for the cost difference by charging extra fees for nearly every other amenity, including a fee for carry-on baggage.
Officials at Spirit believe that the U.S. Justice Department would never approve a deal with JetBlue because it involves a low-cost carrier purchased by an airline that has traditionally operated using higher fares.
The Biden administration has earned a reputation for challenging mergers because of antitrust concerns.
For instance, the Justice Department attempted to terminate the alliance between American and JetBlue last September, despite the deal not being a full merger. The department alleged that the agreement raised the price of airline tickets while also reducing the number of choices for passengers traveling within the busy Northeast corridor.
Both JetBlue and American deny the allegations, and they are fighting this suit in court.
The last few decades have been busy for airlines attempting to merge within the umbrella of the four primary carriers; American, United, Delta, and Southwest. These four airlines carry over 80% of the nation’s air passengers. Should the deal with Frontier and Spirit come to fruition, the new carrier would jump over JetBlue and Alaska Air in total passenger miles flown, making it the nation’s fifth-largest carrier.
