JetBlue’s bid for Spirit throws a wrench into the planned Spirit-Frontier merger

The New York Times first reported the bid, which triggered a 22% rally for Spirit shares in late trading Tuesday before a halt.

Spirit’s stock was down a fraction in the extended session. JetBlue shares, which ended the regular trading day down 7.1%, fell 2.7% in the after hours. Frontier shares
ULCC,
+0.28%
were off 1.7% after ending the regular trading day up 3.9%.

JetBlue’s proposal would be less likely to be given a pass by the Federal Trade Commission, as regulators since the advent of the Biden administration have been “very strongly opposed to any deals that might have the appearance of reducing competition,” said Colin Scarola, an analyst at CFRA Research.

“Spirit is generally a much lower-cost carrier than JetBlue, so, with JetBlue being the acquirer, presumably their strategy prevails and Spirit’s prices go up significantly over time,” he said. “That would give the Biden FTC all the justification they need to sue to block the deal, in my view.”

It would also create a much larger airline than a Spirit-Frontier combination, another matter that Washington might look upon with disfavor, he said.

“That being said, this offer being about 27% higher than Frontier’s, and, with the much greater certainty for Spirit shareholders of all-cash, it means Spirit will likely take the risk and accept the JetBlue bid,” Scarola said.

“It’s just too much more money to pass up, even with the much higher regulatory kill risk,” he said.

Jetblue’s proposal represents a 50% premium to Spirit’s closing price on Monday and a 23% premium to Tuesday’s close.

Frontier and Spirit announced their plan to merge in February. The deal was greeted as a potential boon to budget-minded flyers and as a way out for both ultra-low-cost airlines amid the staffing issues that have been plaguing airlines during the pandemic.

The carriers had worked out a plan that would offer Spirit shareholders 1.9126 shares of Frontier plus $2.13 in cash for each Spirit share they owned, which on Tuesday worked out to nearly $25 a share.

Spirit said on Tuesday that its board was evaluating the JetBlue bid, as was its duty, and will pursue what’s best for the company and its shareholders. That evaluation will be conducted in accordance with the terms of the merger proposal with Frontier, Spirit said.

JetBlue said its bid clearly is the “superior proposal” as compared with the ultra-low-cost carriers’ merger agreement.

Moreover, it would position JetBlue to be the “most compelling” low-cost challenger to the “big four” U.S. airlines, strengthen its commitment to Florida and New York, and “turbocharge” its network, “diversifying and expanding JetBlue’s footprint across the U.S., Caribbean, and Latin America,” the company said.

After pandemic-related shutdowns and travel restrictions slammed the air-travel industry, domestic and short-haul international bookings were the first to show signs of life. As demand grew, however, many airlines faced staffing crunches related to previous capacity cuts and other factors.

Spirit, Frontier and other smaller, regional airlines often have a harder time hiring than do larger air carriers. The merger between Spirit and Frontier was seen as alleviating some of that labor crunch.

In a statement Tuesday, Frontier stood by its bid, saying its proposal would be in the best interest of consumers and shareholders. “A combined Spirit and Frontier will deliver $1 billion in annual savings for consumers and offer even more ultra-low fares to more places nationwide,” it said.

A JetBlue and Spirit deal would do the opposite, it said. “In particular, the significant East Coast overlap between JetBlue and Spirit would reduce competition and limit options for consumers,” it said.

Frontier also poked at the Department of Justice currently seeking to block a pending alliance between JetBlue and American Airlines.