JetBlue and Spirit announced a $3.8 billion merger deal after a previous agreement between Spirit and Frontier Airlines collapsed Wednesday. The newly merged airline will be the fifth-largest in the United States in a potential challenge to “big four” carrier dominance.
Spirit shareholders rejected the deal in favor of JetBlue’s more generous offer. The two airlines, JetBlue and Frontier, have been courting Spirit for months in hopes of creating a bigger budget airline that could result in lower airfare prices.
But the road has been strewn with pitfalls until today’s announcement. In February, Frontier has announced its plans to buy Spirit in a cash and stock transaction valued at $2.9 billion. But JetBlue had their own designs on Spirit, presenting an all-cash offer of $3.6 billion in April. The airline even offered to pay a $200 million severance fee in case antitrust issues prevent the deal from going ahead.
Despite all this, Spirit still rejected the deal, citing JetBlue’s North American Alliance (NEA) with American Airlines as its main concern. The board said antitrust concerns and “an unacceptable level of closing risk” to its shareholders were the reasons for rejecting JetBlue’s bid. JetBlue then launched a hostile takeoverlowering its offer to $30 per share, while signaling that it would be open to a consensus trade of $33 per share.
Faced with a hostile takeover, Spirit balked, eventually abandoning negotiations with Frontier. Today, Spirit and JetBlue announced that the boards of both companies have approved the new merger deal at $33.50 per share, which would value the combined airline at an enterprise value of 7.6 billions of dollars.
“Spirit and JetBlue will continue to advance our shared goal of disrupting the industry to drive down fares for the Big Four airlines,” said JetBlue CEO Robin Hayes. in a report.
Spirit Airlines now finds itself in the awkward position of having to sell to shareholders a deal it previously opposed, particularly in light of antitrust concerns. “A lot has been said over the last few months obviously, always with our stakeholders in mind,” Spirit CEO Ted Christie said on CNBC this week. “We listened to the folks at JetBlue, and they have a lot of great ideas on their plans for this.”
The deal still needs shareholder approval, as well as antitrust regulators. And it arrives during a summer agitated by flight delays and cancellationsskyrocketing customer complaints and raising concerns in Washington.