After a prior transaction between Spirit and Frontier Airlines fell through on Wednesday, JetBlue and Spirit announced a $3.8 billion merger agreement. The newly amalgamated airline will be the fifth-largest in the United States, posing a threat to the “Big Four” airlines’ supremacy.
Spirit’s shareholders rejected the proposal in favour of JetBlue’s more generous offer. JetBlue and Frontier have been wooing Spirit for months in the hopes of becoming a larger budget airline, which might result in lower airline ticket pricing.
However, the route to today’s announcement has been difficult. Frontier announced intentions to purchase Spirit for $2.9 billion in cash and equity in February. However, JetBlue had its own plans for Spirit, making an all-cash bid of $3.6 billion in April. The airline even promised a $200 million breakup payment if antitrust difficulties stopped the merger from closing.
Despite this, Spirit rejected the agreement, citing JetBlue’s North American Alliance (NEA) with American Airlines as the primary source of worry. The board rejected the JetBlue deal because to antitrust concerns and “an unacceptable amount of closure risk” to its shareholders. JetBlue then launched an aggressive acquisition, dropping its offer to $30 per share but still showing its willingness to negotiate a $33-per-share purchase.
Spirit faltered in the face of a hostile acquisition, finally walking out of discussions with Frontier. Spirit and JetBlue announced today that their boards of directors have approved a revised merger deal at $33.50 per share, valuing the merged airline at $7.6 billion.
“Spirit and JetBlue will continue to work together to disrupt the market and drive down rates from the Big Four airlines,” JetBlue CEO Robin Hayes said in a statement.
Spirit Airlines is now in the unenviable position of trying to pitch a transaction to shareholders that it earlier rejected, particularly given antitrust concerns. “Obviously, a lot has been said over the previous several months, always with our stakeholders in mind,” Spirit CEO Ted Christie remarked this week on CNBC. “We’ve been listening to JetBlue, and they have a lot of fantastic ideas on their plans for it.”
The transaction must still be authorised by shareholders and antitrust authorities. And it comes amid a summer rife with airline delays and cancellations, driving passenger complaints increasing and forcing Washington to express worry.
