Source: Spirit Airlines
- Latest JetBlue Offer Does Not Address Serious Regulatory Concerns or Deliver Greater Value
- Frontier Merger Provides Opportunity for Significantly More Value of at Least $50 Per Share and Greater Certainty of Completion
Spirit Airlines, Inc. (“Spirit” or the “Company”) has reaffirmed its commitment to its merger agreement with Frontier Group Holdings Inc. (“Frontier”), parent company of Frontier Airlines, Inc., and commented on the most recent revised offer from JetBlue Airways Corporation (“JetBlue”) received on June 27, 2022.
Ted Christie, President and CEO of Spirit, said, “The latest offer from JetBlue does nothing to address our Board’s serious concerns that a combination with them would not receive regulatory approval. That unsolved issue, combined with the fact that their offer is still substantially below the potential $50 per share or more of value that we expect will result from a merger with Frontier, affirms our analysis that our merger agreement with Frontier provides more value and certainty to our stockholders.”
Christie continued, “While we have engaged with JetBlue for weeks and provided them a level playing field on which they could make their best offer, unfortunately they have now turned to scurrilous rhetoric instead of a substantive improvement in their offer. We are focused on proceeding with our agreement with Frontier, and we appreciate the continued support of ISS and Glass Lewis as well as the feedback from many stockholders who intend to vote in support of the transaction.”
JetBlue’s offer is still substantially below the potential $50 per share or more that could result from a merger with Frontier and does not offer significantly greater economics than prior proposals. The JetBlue “ticking fee” has no economic effect for 18 months after signing. Since the vast majority of the reverse termination fee (“RTF”) would be paid out in October 2022, and thus is a sunk cost at the time real decisions have to be made in respect of regulatory approvals, the RTF itself provides little economic incentive for JetBlue to do what it takes to complete the deal.
JetBlue’s offer still does not provide a clear path to obtaining regulatory approval or offer anything new from a regulatory standpoint – it stands almost no chance of approval if the Northeast Alliance (“NEA”) with American Airlines remains in effect.
- JetBlue has refused multiple requests to abandon its de facto merger with American even though the Department of Justice (“DOJ”) has sued to block the alliance on grounds that it is anticompetitive.
- Contrary to what JetBlue wants you to believe, the NEA substantially increases the risk profile of a JetBlue transaction, as it would further consolidate an already highly concentrated industry, giving the entangled JetBlue and American partnership even more market power.
- JetBlue has already stated it would raise fares and reduce capacity, exactly what the antitrust laws were designed to prevent.
Independent third parties also recognize the serious regulatory challenges of JetBlue’s proposal and question JetBlue’s rationale.
“JetBlue will lose. Ted Christie will win. I’ve worked really hard on this, and I just think that, this fellow Jonathan Kanter gave a speech when he came in – he’s the head of antitrust – saying he does not favor and will not let any deal where you need divestiture to get it done. Any deal!” – Jim Cramer, Co-Anchor of “Squawk on the Street” (CNBC, June 28, 2022)
“JetBlue’s making a big mistake. They keep doing this, and they’re going to lose…because Jonathan Kanter who is head of antitrust has said point blank, ‘You can’t do what they’re doing.’” – Jim Cramer, Co-Anchor of “Squawk on the Street” (CNBC, June 28, 2022)
“This offer is a headscratcher from JetBlue, especially with this administration and in this regulatory environment […] Let’s try to understand what JetBlue’s motivation could be if they are not just trying to acquire Spirit. And I am assuming their regulatory advisors are well aware of the risks, as are we. So, perhaps they are trying to disrupt the [Spirit-Frontier] deal. Also, JetBlue is currently litigating the DOJ over their Northeast Alliance and there are some reasons to suspect that going after Spirit in this way could actually help them in their defense.” – Aaron Glick, Director and Analysts for Options & Events at Cowen and Company (CNBC, May 16, 2022)
“JetBlue announced a tender offer for Spirit Airlines […] Here is a sampling of comments from people I spoke to this morning, who are well studied in these things: ‘There is no shot in hell’; ‘I want to take it off my screen cause it’s just a waste of my time’; ‘this is absolutely meaningless’; ‘reminds me of when Dollar General made that tender offer for Family Dollar – like that ever had a chance of happening either’. Nobody I speak to in the investment community seems to think this has any shot of ever happening because it will be rejected by the Department of Justice, period.” – David Faber, Co-Anchor of “Squawk on the Street” (CNBC, May 16, 2022)
“The market is clear in a preference for JetBlue to walk away from the deal. The stock is down over 40% YTD […] The Frontier offer doesn’t have the same regulatory risk and the deal is mostly stock. The ultra low-cost carrier isn’t taking on additional debt to pay for the deal, making the offer superior to those shareholders where the combination provides synergies to make a better airline to compete with the big four.” – Stone Fox Capital (Seeking Alpha, June 24, 2022)
“Combining JetBlue and Spirit would be ‘a complete disaster,” – John Samuelson, President of the Transport Workers Union (Associated Press, May 17, 2022)
“[…] if I were to think about this from a [Justice Department] perspective, it does make sense for Spirit and Frontier to have more of a chance getting DOJ approval, given their business plan of attracting leisure travelers.” – Kerry Tan, an associate professor of economics at Loyola University (Washington Post, June 6, 2022)