Spirit Airlines and Frontier Airlines agreed on Wednesday to drop their merger proposal, paving the way for JetBlue Airways to acquire Spirit after a months-long bidding war for the low-cost carrier.
Spirit and Frontier’s decision to end their agreement was announced as Spirit shareholders were still voting on the proposal. It was evident that despite the support of Spirit’s board of directors, shareholders were prepared to reject the deal.
Spirit CEO Ted Christie said he was disappointed to have abandoned the merger with Frontier.
“Spirit’s Board of Directors will continue its ongoing discussions with JetBlue as we pursue the best path forward for Spirit and our shareholders,” he said in a statement.
Frontier’s offer was worth more than $2.6 billion in cash and stock, well below JetBlue’s cash offer of $3.7 billion.
A combination of Spirit with Frontier or JetBlue would create the nation’s fifth-largest airline, though still a bit smaller than American, United, Delta and Southwest.
Attention will now turn to the regulatory hurdles to a deal between Spirit and JetBlue. Spirit’s board backed the Frontier deal for months in the face of a more expensive offer from JetBlue, arguing that antitrust regulators would never let JetBlue buy the country’s biggest budget airline and withdraw as a competitor from more expensive carriers. Unsurprisingly, JetBlue disagreed with this view.
The Biden administration was always likely to scrutinize either deal. Both the president and his top antitrust official at the Justice Department have indicated an aversion to corporate mergers.
Some analysts said the small size of Frontier and Spirit would have earned them a pass from antitrust regulators in previous administrations, but not anymore. Still, a JetBlue deal looks more problematic, in part because the Justice Department is already suing to sever a regional partnership in the northeast between JetBlue and American Airlines.
Frontier and Spirit announced their deal on Feb. 7, saying they would create a massive discount airline that would save consumers $1 billion a year in airfares by creating a powerful new competitor for American, United, Delta and Southwest.
The proposal would have brought together two very similar airlines – both tempt travelers with very low fares, but add fees for some things the bigger carriers include with most tickets, soft drinks instead for a bag in the luggage compartment.
JetBlue is a more conventional airline that some travelers prefer due to its amenities, including free TV and internet access during flights. In that sense, Spirit seems an odd fit.
Once Spirit was in play for a merger, however, JetBlue CEO Robin Hayes decided he couldn’t sit back and watch two budget carriers combine and outgrow his size. On April 5, JetBlue launched a bidding war by announcing its own plan to buy Spirit.
JetBlue saw the acquisition of Spirit as the best way to quickly add planes and pilots and break out of the second tier of US airlines.
JetBlue argued it would also help consumers, lowering fares more effectively than Frontier and Spirit.
New York-based JetBlue launched a furious campaign to convince Spirit shareholders to reject Frontier’s offer, and the tide seemed to turn in its favor. Spirit’s board has postponed votes on the Frontier deal four times, and this month Frontier CEO Barry Biffle admitted his team is losing badly.
Both Frontier and JetBlue have increased their offers in recent weeks, including and increasing break fees for Spirit shareholders.
In the end, Frontier offered $4.13 in cash plus 1.9126 shares of its stock for each Spirit share. It was worth about $2.65 billion at Frontier’s closing price on Tuesday, and Spirit shareholders would have owned 48.5% of the combined company.
JetBlue’s offer was simpler – $33.50 per share, plus a late fee to cover any delays in regulatory review, which would bring the offer’s value to $3.7 billion, all cash.