JetBlue Doesn’t Know When To Quit, Raises Offer To Buy Spirit Airlines

When Frontier Airlines raised its offer to buy Spirit Airlines and gave the Spirit Airlines board cover to again endorse a merger between the two airlines (walking away from a much bigger offer from JetBlue that faces greater anti-trust scrutiny) it seemed like game over. The new offer even got the endorsement from two independent proxy advisory firms.

JetBlue isn’t done though. They’ve come out with a new, increased offer in advance of Thursday’s Spirit Airlines shareholders meeting, a last ditch effort:

  • Increase the breakup fee from $350 million to $400 million if the deal falls apart over anti-trust. JetBlue’s offer is much bigger. The only reason not to take it is a bet that the federal government keeps it from closing. But if that’s so certain, it’s hard to argue against taking JetBlue’s $400 million and then re-shopping the airline in a year.

  • Prepayment goes up o $2.50 per share payable as soon as Spirit’s shareholders approve a deal

  • The longer the deal takes to close, the more Spirit shareholders get. Spirit shareholders would receive an additional 10 cents per month starting from January 2023 through date of closing or deal termination, though the first $1.15 counts against the breakup fee.

Frontier’s deal is worth $22.03 per share of Spirit stock at Monday’s close. That’s below Monday’s closing price for Spirit shares of $22.57. Spirit was down almost 8% on the day with the market closing in on the Frontier acquisition happening.

Meanwhile JetBlue’s deal is worth over $33.50 – JetBlue estimates $34.15 but that’s based on the merger not closing until mid-2024 (!).

Spirit shareholders vote on the proposed Frontier transaction. Spirit is substantially-owned by institutions on behalf of smaller investors. It will be up, in large measure, to the Vanguards and iShares of the world.

Clearly though the combined company is more valuable to Frontier than it is to JetBlue, yet JetBlue is offering to pay over 50% more.

  • JetBlue has had a less profitable business model than either Frontier or Spirit. JetBlue plans to convert Spirit’s assets from that more productive use to their less productive one.
  • They’re not buying Spirit’s assets to leverage their more profitable model or expertise. They’re just buying it for parts (planes, gates, slots, pilots)
  • Meanwhile they’re committing to give up some of Spirit’s most valuable assets in gates and slots in New York and Boston
  • Meanwhile JeBlue will wind up raising wages for many Spirit employees, and incurring capital expenses to retrofit planes.
  • And there’s a good chance the federal government leverages any settlement to approve JetBlue-Spirit to kill JetBlue’s Northeast Alliance with American, making them choose one or the other.

There’s little question that JetBlue is overpaying. Frontier ‘took them off the hook’ for bidding too much for the assets to begin with. They couldn’t declare victory and go home, they had to make one last effort and increase their offer further.

A JetBlue victory would be the ultimate example of winner’s curse. There’s a reason Frontier’s offer isn’t anywhere close to JetBlue, and no third party has come in to outbid Frontier or come close to JetBlue for Spirit.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. The real question here: Of the three, which one will have the shittiest operational performance over the next quarter?

  2. But JetBlue knows it won’t get it. There’s no risk as there’s no shareholder’s advocacy group really pushing to drive up the price. It’s all Franke game. This is a rationale response to drive up Frontier’s payment. B6 is not going to be independent for more than 5 or so years. I’m impressed that B6 is pushing this. I agree that AA and Northeast Alliance will definitely be toast if this goes through, but who cares. AA just plays checkers. It’s time to play chess.

  3. Although the NE airports create an issue for the Jetblue merger I think the Jetblue deal would jump start their midwest route map that is a glaring gap for Jetblue on the level of Alaska airlines east coast operations. It would also bring a large fleet of young aircraft and pilots which are worth gold right now.

  4. Though Alaska had a more compelling argument acquiring Virgin America it seems eerily similar to JetBlue wanting Spirit

  5. This has stopped being about economics or rational business analysis and is now about proving manhood. What a disaster for JetBlue shareholders if this goes through.

  6. This is ridiculous. JetBlue will be gone in 5 years anyway. One needs to get a strategic rather than a tactical perspective. Spirit and Feontier are kissing cousins, so the Fromtier offer is truly laughable and under market even if it moves up a few points. And B6 has Mr Spirit, Ben Baldanza on its board. Let’s elevate this discussion. The AA NE alliance is expedient but perishable. JetBlue needs to control its destiny rather than being beholden to America West mgmt. The engines may flame out , but status quo is iffy.

  7. Just proves that slots and gates are the only thing worth a damn in this industry.

  8. JBLU clearly is desperate to win the bidding war for SAVE and to not be shut out as they were for Virgin America by ALK. Problem is that ALK never gained the stated benefits of the merger with Virgin America and that will be the case wiht JBLU and SAVE.
    The best thing for the rest of the industry will be for JBLU to win the bidding war and then spend billions of borrowed money trying to make it all work, even as SAVE’s stockholders likely will get more than they would with ULCC.
    American’s plan to ditch PHL longhaul international in favor of JFK looks to be shaping up as a very bad decision. And AA will have to figure out how to use a bunch of slots it thought it could pawn off on JBLU.

  9. JetBlue is a joke. It can’t run a clean operation (never really could) and is wasting resources and talent going after another basket case of an airline in a futile effort to take on more planes so that it can further screw up its operation and its customers. Perhaps it will work, and if it does, it will come at a steep cost, making B6 cheap as chips and eventually end up in the arms of American Airlines, who will borrow a page from a prior playbook that it has done for decades. Knock out a competitor and gain the assets it wants (in this case, JFK and BOS) only to squander them later. Either way, JetBlue’s days as an independent carrier are numbered.

  10. The way I see it Jet Blue is pretty desperate to buy Spirit they’re in a panic for non planning of future growth if Spirit Airlines goes with Frontier Airlines Jet Blue will will have nobody to merge with it’s the same as when you were a kid and people were picking teams and you were not picked you were left standing there by yourself sorry Jet Blue but I think that person standing alone will ultimately be You

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