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JetBlue is Making a Move on Spirit Airlines
JetBlue Airways has offered $3.6 billion for Spirit Airlines, but the discount carrier is still holding out hope that they’ll get more than their current offer from another company merger with Frontier Airline instead of doing business as usual and accepting this lowball deal.
On Monday, JetBlue made a $30-per-share tender offer to Spirit shareholders and urged them to vote against the Frontier merger at a June 10 Spirit meeting. If Spirit wants to negotiate, the company said its original offer of $33 per share is still on the table.
JetBlue turned down a $2.9 billion stock-and-cash deal with Frontier earlier this month in favor of their own smaller offer which was eventually accepted by Spirit’s board members last week after much negotiation between both sides over regulatory concerns regarding an acquisition by Jet airways Incorporated (JTA).
JetBlue has accused Spirit of using a smokescreen to avoid addressing regulatory risks that might apply if their merger was approved. CEO Robin Hayes said in an internal memo, “We’re offering shares at slightly lower prices than what we originally offered because these boards don’t allow us enough time or access.”
Spirit’s CEO Ted Christie responded to the comments made by Bloomberg’s anonymous source later Monday and said they are putting in “a tremendous amount of effort” into reviewing JetBlue Airlines’ offer. In an interview with CNBC’s ‘Power Lunch,’ he continued that this misinformation could cause problems for Spirit if it isn’t taken care quickly enough: “We have a lot at stake here.”
JetBlue has intentions to buy up Frontier and Spirit in order gain access into larger planes,
trained pilots that can fly them around safely as well the ability to compete more easily with Big Four U.S airlines who control most of the American marketplace.
Mixing together all of the above would result in Spirit becoming the country’s fifth-largest airline.
Spirit and Frontier Airlines are the two most affordable airlines in America, with a similar model of tighter seating for an ultra-low fare. Their business class service can be compared to that offered by JetBlue which features free WiFi while your seatback TV will keep you entertained during flight time.
Jefferies analyst Sheila Kahyaoglu said that despite the differences between SAVE and Frontier, their operating models are similar enough to drive efficiencies. “JBLU is a more direct competitor in premium markets where network carriers have shifted focus,” she added “The airline industry has always been competitive but we believe there are structural changes taking place now which will lead us towards greater levels of competition going forward.”
When Bill Franke, the former chairman and CEO of Spirit Airlines left his position in 2013 to become Indigo Partners’ managing partner-in-charge; they bought Frontier Airline. However he hasn’t been able or willing to respond to requests for comment.
JetBlue’s Hayes suggested that previously-laid plans for Spirit and Frontier to combine were hurting the airline’s stock price.
The news that Spirit Airlines rejected $3.6 billion in cash from JetBlue last month put them at a crossroads, and now they have an opportunity to grow stronger as demand for new narrow-body planes is high right now with pilots also being in short supply.
Spirit Airlines is turning down an offer from JetBlue because they don’t think the deal will be approved by regulators, but CEO Dave Couteur has ” wondered whether blocking our merger with Frontier might actually serve their goal.” American refused to comment.
Spirit’s CEO was firm in his resolve and turned down an offer from JetBlue, which would have allowed them to continue operating without divestiture or approval on Antitrust grounds. Instead they demanded $200 million as a reverse breakup fee if the deal wasn’t approved within three months time frame.
The Department of Transportation is declining to comment on the deal, but will help support any analysis from Justice Department officials.
During his interview with Squawk Box, he said that one way to make sure the American people are served well by a healthy airline sector is through competition.
On Monday, shares of spirit jumped more than 13% while those for JetBlue Airways fell 6%. The Frontier Airline also enjoyed a strong close to the day with an increase near 6%, although stocks declined overall as well.
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