Spirit Airlines’ board on Monday rejected a $3.6 billion takeover bid from rival JetBlue Airways, saying it would pursue its merger with Frontier Airlines.
The board concluded that JetBlue’s offer was not a better deal and might have difficulty getting approved by the Justice Department’s antitrust division.
“The board determined that JetBlue’s proposal involved an unacceptable level of closing risk that would be borne by Spirit shareholders,” Mac Gardner, chairman of Spirit’s board, said in a statement. “We believe our impending merger with Frontier will open an exciting new chapter for Spirit.”
The three airlines sought a way to build a carrier that could better compete with the country’s four largest airlines, which dominate domestic air travel. Frontier and Spirit announced their proposed $6.6 billion merger in February, then JetBlue announced its offer to buy Spirit in early April.
But on Monday, Gardner wrote that even after reviewing an updated proposal from JetBlue, Spirit management concluded that pursuing the Frontier merger was the best way forward. He wrote that the prospect of rejection by federal authorities — centered on an alliance between JetBlue and American Airlines — made the offer too risky.
“This imposes a degree of risk on our shareholders that no responsible board would accept,” Gardner wrote. “Given this substantial completion risk, we believe JetBlue’s economic offer is illusory, and Spirit’s board has not deemed it necessary to review it.”
JetBlue unveiled the revised offer on Monday. Announcing the updated offer, JetBlue Chief Executive Robin Hayes said it “would deliver significant benefits to customers, superior value to shareholders of both airlines and new opportunities for our crew members. combined”.
In an email to employees, Frontier management called Spirit’s board decision “good news” and said the merger was “an exciting development for all of us.”
The flurry of proposals comes as the airline industry continues its recovery from the pandemic. Any merger would be the first since 2016, when Alaska Airlines began an acquisition of Virgin America. The country’s four largest carriers – United Airlines, American, Delta Air Lines and Southwest Airlines – account for about 80% of the market.
JetBlue was the fifth-busiest carrier before the pandemic, with 43 million passengers in 2019, while Spirit ranked eighth, according to Transportation Department data. Frontier was the ninth largest airline that year.
Analysts say a merger of one of the two could create an airline with the scale and routes to compete more effectively with the top four. While a merged JetBlue and Spirit would be larger, the combination of Spirit and Frontier would propel them into JetBlue’s fifth spot – a prospect that could have motivated JetBlue’s bid.
In trying to sweeten its offer, JetBlue offered to pay Spirit $200 million if the deal fell through and said it would be willing to divest assets to assuage any concerns raised by regulators.
JetBlue argued that it was bringing benefits to consumers in the markets it entered, prompting major airlines to lower fares. Hayes said a merger between Spirit and Frontier would not provide the same price reduction benefit.
“JetBlue is simply unmatched at shaking the market with the competition,” he wrote in a note to employees Monday.
But Spirit’s board was unmoved by the new proposal, questioning that claim and saying JetBlue’s alliance with American posed too much risk. The Justice Department, along with six state and district attorneys general, filed a lawsuit to block the U.S.-JetBlue partnership, alleging it would reduce competition and hurt consumers with higher prices across the country – even if the agreement concerns flights in the Northeast.
Although a Spirit-Frontier merger will need to be reviewed by the Justice Department, industry analysts have said it is unlikely to raise significant concerns. Spirit said in a memo to employees on Monday that the review is ongoing and proceeding as planned. The airline said the merger could be completed by the second half of the year.
The Justice Department’s antitrust division declined to comment.