JetBlue and Spirit announced a $3.8 billion merger deal after an earlier deal between Spirit and Frontier Airlines collapsed on Wednesday. The newly merged airline will be the fifth largest in the United States in a potential challenge to the dominance of the “Big Four”.
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 larger budget airline that could have the effect of lowering airfares.
But it’s been a rough road leading up to today’s announcement. In February, Frontier announced plans to buy Spirit in a cash and stock deal valued at $2.9 billion. But JetBlue had its own designs on Spirit, filing a $3.6 billion all-cash bid in April. The airline even offered a $200 million breakup payment in case antitrust issues prevented the deal from going through.
Despite all that, Spirit still rejected the deal, citing JetBlue’s North American Alliance (NEA) with American Airlines as a major concern. The board said antitrust concerns and “an unacceptable level of foreclosure risk” to its shareholders are reasons for rejecting JetBlue’s offer. JetBlue then launched a hostile takeover, lowering its offer to $30 per share but still indicating it would be open to a $33 per share consensus transaction.
Facing a hostile takeover, Spirit balked and eventually walked away from negotiations with Frontier. Today, Spirit and JetBlue announced that the boards of directors of both companies approved the new merger agreement at $33.50 per share, which would value the combined airline at an enterprise value of $7.6 billion.
“Spirit and JetBlue will continue to advance our shared goal of disrupting the industry to drive down fares for the big four airlines,” JetBlue CEO Robin Hayes said in a statement.
Spirit Airlines is now in the uncomfortable position of having to sell shareholders a deal it previously opposed, especially 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 told CNBC this week. “We’ve been listening to the people at JetBlue and they have a lot of ideas about their plans for this.”
The deal still needs to be approved by shareholders as well as antitrust regulators. And it comes during a summer plagued by flight delays and cancellations, sending customer complaints soaring and raising concerns in Washington.