“We are pleased that the merger agreement with Frontier has been terminated and we are engaged in ongoing discussions with Spirit,” JetBlue said.
Spirit Airlines (SAVE) – Get Spirit Airlines Inc. Report shares moved firmly higher Thursday after shareholders voted against the discount carrier’s tie-up with Frontier Airlines (ULCC) – Get Frontier Group Holdings Inc. Report, paving the way for a potential $3.7 billion takeover by JetBlue (JBLU) – Get JetBlue Airways Corporation Report.
Spirit shareholders rejected Frontier’s $19.99 per share bid for Spirit, which was pegged far lower than JetBlue’s sweetened $33.50 per share offer but carries far more regulatory risk, in a vote that was completed late Wednesday.
Spirit will pay around $25 million in merger-related costs to Frontier, which said it was “disappointed” with the vote result, and will need to pay around $70 million more if it were to accept a deal with JetBlue.
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“While we are disappointed that we had to terminate our proposed merger with Frontier, we are proud of the dedicated work of our Team Members on the transaction over the past many months,” said Spirit CEO Ted Christie. “Moving forward, the Spirit Board of Directors will continue our ongoing discussions with JetBlue as we pursue the best path forward for Spirit and our stockholders.”
Spirit Airlines shares were marked 5.27% higher in pre-market trading to indicate an opening bell price of $25.58 each while Frontier and JetBlue were essentially unchanged some last night’s close.
Any potential takeover by JetBlue would likely face significant regulatory hurdles and a close look from the Department of Justice on the grounds that it could raise fares and limit customer choice.
To compensate for the regulatory risk, JetBlue has pledged to boost its ‘reverse breakup fee’ to around $350 million in the event that antitrust authorities fail to approve its proposed $3.7 billion merger.
That risk appears likely, given that the the Justice Department has already filed a lawsuit against JetBlue’s northeast alliance with American Airlines (AAL) – Get American Airlines Group Inc. Report, a tie-up the carrier says will remain in place if its allowed to complete its takeover of Spirit.
In late March, a group of lawmakers lead by Senators Elizabeth Warren and Bernie Sanders telling regulators the deal would “consolidate market power for the airlines and reduce choices for travelers.”
“We are pleased that the merger agreement with Frontier has been terminated and we are engaged in ongoing discussions with Spirit toward a consensual agreement as soon as possible,” JetBlue said in a statement.
