LONDON – Spirit Airlines has urged shareholders to reject JetBlue’s hostile takeover bid over the perspective that the deal would hurt shareholders in the company.

Commenting on this was Mac Gardner, the Spirit Chair of the Board of Directors:

“JetBlue’s tender offer has not addressed the core issue of the significant completion risk and insufficient protections for Spirit stockholders.”

“Based on our own research and the advice of antitrust and economic experts, our view is that the proposed combination of JetBlue and Spirit lacks any realistic likelihood of obtaining regulatory approval, while our company faces a long and bleak limbo period as we await resolution.

In that scenario, a $1.83 per share reverse break-up fee will not come close to adequately compensating Spirit stockholders for the significant business disruption Spirit will face during what JetBlue acknowledges will be a protracted regulatory process.”

“Our pending merger with Frontier is advancing as planned, and we continue to recommend that Spirit stockholders vote FOR the merger with Frontier on June 10th, as we believe the combination of these two ULCCs is the best way to deliver maximum value to Spirit stockholders.”

Significant Number of Reasons For This…

Below is a list of the carrier’s reasons for recommending the rejection of this deal:

• The JetBlue transaction faces very substantial regulatory hurdles, especially while the NEA is in effect
  • Spirit does not believe that the JetBlue transaction is likely to receive regulatory approval.
  • Spirit retained top-tier aviation and economic consultants and worked with JetBlue and its advisors for four weeks to reach an informed view about the regulatory risk posed by the JetBlue proposals of March 29 and April 29 and the subsequent JetBlue tender offer. In the end, after several weeks and counting, Spirit concluded that the consummation of the proposed JetBlue combination, with the NEA remaining in place, seemed almost inconceivable – especially given the cavalier manner in which JetBlue intends to address the significant regulatory risk. 
  • The U.S. Department of Justice (DOJ) is currently suing JetBlue and American Airlines, alleging that the NEA is anti-competitive. Not only Spirit but also many other airlines and air travel constituencies have publicly opposed the NEA on grounds that it is anti-competitive. Spirit does not believe that the JetBlue proposal to acquire Spirit will be approved by the DOJ in light of that litigation.
  • Moreover, Spirit does not believe the DOJ, or a court will be persuaded that JetBlue should be allowed to form an anticompetitive alliance that aligns its interests with a legacy carrier (American) and then undertake an acquisition that will eliminate the largest ULCC carrier in the U.S. (Spirit).
  • Nonetheless, by insisting on prioritizing its position in the NEA as it pursues a Spirit merger, JetBlue effectively imposes this heightened regulatory risk entirely on Spirit stockholders.
  • Even putting aside the NEA, Spirit believes the DOJ – and a court – will be very concerned that a JetBlue-Spirit combination will result in a higher-cost/higher fare airline that would eliminate a lower-cost/lower fare airline and remove about half of the ULCC capacity in the United States.
  • The conversion of Spirit aircraft to JetBlue configuration will result in significantly diminished capacity on former Spirit routes, and, as JetBlue has stated, will also result in higher prices for consumers.
• JetBlue’s proposed divestitures are highly unlikely to resolve the DOJ’s concerns given the NEA’s alignment of JetBlue’s and American’s incentives across the country
  • JetBlue’s proposed divestiture of Spirit assets in New York and Boston does not address the broader competitive implications of effectively merging Spirit into JetBlue’s alliance with American.
  • The DOJ has alleged that “the harms threatened by the [NEA] … extend well beyond Boston and New York City. … The [NEA] allows American to forgo independent growth that would have benefited consumers. By effectively absorbing JetBlue’s operations in Boston and New York City, American can reduce investments not just in those cities, but also in other parts of its network where it otherwise would maintain or add services. Consequently, consumers across the country will have fewer options and pay higher fares.”
  • Current DOJ antitrust leadership has expressed deep skepticism about the effectiveness of divestiture remedies and a preference for seeking to block transactions rather than accept divestiture-based settlements.
• JetBlue’s offer puts the risk of the antitrust condition NOT being satisfied on Spirit stockholders
  • Any JetBlue transaction cannot close without HSR approval, which even JetBlue concedes could take up to 24 months. Spirit shareholders are being asked to bear substantial risks without commensurate protections.
  • The Spirit Board expects the DOJ would bring a lawsuit to block the acquisition, and that any such lawsuit is unlikely to be resolved until between 18 and 24 months after the date of JetBlue’s initial HSR filing.
  • During the extensive discussions held between Spirit and JetBlue, JetBlue itself admitted that a lawsuit from DOJ seeking to block the merger was a 100% certainty; therefore, JetBlue would have to prevail or settle (which would be contrary to DOJ’s avowed enforcement approach) in order to consummate its proposed acquisition of Spirit.
• JetBlue’s conditions to the Offer also subject Spirit stockholders to significant risk from fluctuating market conditions and stock market volatility
  • The Offer excuses JetBlue from consummating the transaction if there is any decline in either the Dow Jones, the S&P 500 or the NASDAQ-100 Index by an amount in excess of 10%, measured from the close of business on May 13, 2022, prior to receipt of regulatory approval, which could take up to two years.
  • Since JetBlue first submitted its proposal to acquire Spirit on March 29, 2022, the Dow Jones is down 10.8%, the S&P 500 is down 15.3% and the NASDAQ-100 is down 21.7%.
• Debt financing for an acquisition of Spirit by JetBlue remains questionable
  • According to JetBlue, the financing commitment letters have an expiration date of 14 months from the date of the commitment letters, with certain possible extensions that are subject to (undisclosed) conditions. The Spirit Board believes the regulatory review and challenge process for any acquisition by JetBlue would likely require more than 14 months.

So What Happens Now?

The expectation from the Spirit side of things is that the merger with Frontier will now be expected to be approved by Spirit shareholders.

Spirit has raised some serious concerns about the JetBlue deal, which should be enough to get the airline to back off now, irrespective of any financial value.

Looking ahead, it will be interesting to see whether this will be the last offer made by JetBlue, or whether they will try another tact before Spirit shareholders formally approve the Frontier merger.