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JetBlue ups offer for Spirit Airlines as shareholder vote approaches

JetBlue’s move comes after Frontier Airlines agreed to pay $250 million to Spirit if its deal failed to win regulatory approval

A JetBlue Airways plane near a Spirit Airlines plane on May 16 in Fort Lauderdale. (Joe Raedle/Getty Images)
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correction

A previous version of this article incorrectly said that Frontier Airlines has agreed to pay $200 million to Spirit Airlines if its merger deal fell through. Frontier has offered $250 million. The article also misspelled the last name of John Samuelsen, the Transport Workers Union's international president. The article has been corrected.

JetBlue Airways on Monday threw another $150 million into its high-stakes bid to win control of Spirit Airlines, seeking to persuade shareholders to reject a merger with rival Frontier Airlines.

In a regulatory filing, JetBlue said it would pay Spirit $350 million in the “unlikely” event that a merger between the two carriers failed to win regulatory approval — a portion of which would include a cash payment to shareholders. The revised proposal comes after Frontier said last week that it would offer a $250 million payout if its proposed deal with Spirit wasn’t approved by regulators.

JetBlue’s sweetened proposal comes as Spirit investors are scheduled to vote Friday on whether to merge with Frontier. JetBlue is urging Spirit shareholders to reject the deal while pressuring the Spirit board to negotiate with JetBlue.

The increase in the reverse breakup fee is intended to offer investors an insurance policy if the JetBlue deal can’t pass regulatory scrutiny. In rejecting JetBlue’s previous overtures, Spirit’s board cited concerns that a deal could face hurdles with the Biden administration’s Justice Department, which has taken a more aggressive look at consolidation in several industries.

Frontier, Spirit announce merger that would create the fifth-largest airline

“This has all been quite dramatic,” Kerry Tan, an associate professor of economics at Loyola University, said of the weeks of back-and-forth among the carriers.

While both proposed deals carry regulatory risk, industry analysts have suggested a merger between Spirit and Frontier could have a better chance of winning approval because the Justice Department could see the combination of two ultra-low-cost carriers as a stronger challenge to the four domestic airlines that dominate the industry.

“JetBlue’s offer is financially superior,” Tan said. “But 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.”

JetBlue has maintained that its proposal is superior because it offers Spirit shareholders cash for their stock. Frontier, by contrast, is offering shareholders a combination of cash and stock if the airlines merge.

Either combination would create the nation’s fifth-largest airline.

Two proxy advisory firms have split on which deal would be more advantageous for Spirit shareholders. Last week, Glass Lewis recommended shareholders back the Frontier deal, while Institutional Shareholder Services (ISS) said a deal with JetBlue may offer more upside for Spirit investors. It said that while JetBlue’s proposal may face more “complex regulatory head winds,” there is nothing to suggest its bid has “zero chance of receiving regulatory approval.”

ISS had cited the absence of a “breakup” fee in Frontier’s proposal in its recommendation, prompting the carrier to revise its proposal to include such a provision.

ISS released a new analysis late Monday, noting Frontier’s inclusion of a $250 million breakup fee and JetBlue’s revised proposal increasing its proposed payout to $350 million. Even so, it said its initial recommendation, that Spirit investors vote against the merger with Frontier, still stands.

“We remain fully committed to acquiring Spirit,” JetBlue chief executive Robin Hayes wrote in a letter Monday to Spirit’s board. “After listening to your stockholders and reaffirming with our Board the significant benefits to all stakeholders of combining JetBlue and Spirit, we are pleased to submit this Improved Proposal, which we believe Spirit stockholders will welcome.”

Spirit Airlines rejects JetBlue's buyout bid citing concerns about regulatory approval

In a letter to his employees, Spirit chief executive Ted Christie acknowledged receipt of the revised proposal and said the board would work with its financial and legal advisers to review the offer.

“I know you likely have questions, but unfortunately, I don’t have many answers to share with you just yet,” Christie wrote. “I will be back to you with more information as soon as we have it.”

In a filing with the Securities and Exchange Commission, Christie urged shareholders to take no action until the revised proposal is evaluated.

In May, the Association of Flight Attendants-CWA, which represents flight attendants at Frontier and Spirit, announced it supported a merger between the two airlines. The Transport Workers Union, which represents JetBlue flight attendants, announced last month that it is opposed to a Spirit merger.

John Samuelsen, TWU’s international president, said the merger could eliminate jobs as well as low-cost flight options for consumers.

JetBlue on Monday sought to dispel those concerns, saying it offers higher pay and better benefits than Frontier or Spirit and that a combined airline would “grow and add more well-paying jobs.”

In February, Frontier and Spirit announced plans to merge in a $6.6 billion deal they said would create a more formidable rival to American Airlines, Delta Air Lines, United Airlines and Southwest Airlines, a move they said would also bring cheaper fares and service to smaller cities. In April, however, JetBlue announced an unsolicited cash bid to buy Spirit.

Spirit’s board ultimately rejected that bid in May, concluding it was unlikely to win regulatory approval. JetBlue returned later that month with a revised offer aimed at persuading Spirit shareholders to pressure the board to consider a deal.

If approved, any merger would be the first among the nation’s airlines since Alaska Airlines bought Virgin America in 2016. Before that, American Airlines and US Airways announced their intent to combine operations in 2013, which created the world’s largest air carrier.

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