Spirit Airlines Rejects JetBlue Takeover

Spirit Airlines rejected JetBlue’s takeover bid, JetBlue responded by upping its offer, and Spirit Airlines has once again rejected the offer. The move marks wisdom by Spirit and (understandable yet foolish) desperation by JetBlue.

Spirit Airlines Rejects JetBlue Takeover Bid

Spirit’s board of directors unanimously rejected JetBlue’s takeover offer, explaining that it did not represent a “superior proposal” to Frontier’s offer. Specifically, it offered a handful of reasons why it was concerned the deal would not even go through:

1. It would represent a fundamental transformation of the Spirit Airlines model, which Spirit fears will invite insurmountable regulatory scrutiny
2. JetBlue’s alliance with American Airlines (itself under scrutiny) creates an even greater regulatory barrier
3. JetBlue’s plans to pursue its full-service model will lead to a reduction in cheap fares in the USA
4. Retrofitting current Spirit Airlines’ aircraft to reduce the number of seats onboard “will result in significantly diminished capacity on former Spirit routes, also resulting in higher prices for consumers”

In a letter to JetBlue written by Mac Gardener, the Chairman of the Board at Spirit, notes:

“Spirit believes that merging with Frontier will enable the combined ULCC business to achieve scale, improve operational reliability, have increased relevance to consumers, and do an even better job of delivering ultra-low fares to more consumers and competing more effectively against the Big 4 carriers, as well as against JetBlue. We believe that is a clear, pro-consumer narrative that will resonate more successfully with DOJ than a combination with JetBlue, which would eliminate the largest ULCC and remove significant low-cost/low-fare capacity…

“Spirit continues to believe in the strategic rationale of the proposed merger with Frontier and is confident that it represents the best opportunity to maximize long-term shareholder value. After a thorough review and extensive dialogue with JetBlue, the Board determined that the JetBlue proposal involves an unacceptable level of closing risk that would be assumed by Spirit stockholders. We believe that our pending merger with Frontier will start an exciting new chapter for Spirit and will deliver many benefits to Spirit shareholders, Team Members and Guests.”

This move means the acquisition by Frontier Airlines will proceed.

Unless…

JetBlue Upped Offer…Will It Do So Again?

JetBlue responded to the first rejection by upping its offer. That included:

• Divesture of Spirit assets in the New York City and Boston markets in order to reduce competition concerns
• $200 million “insurance” policy that JetBlue will pay out to Spirit if the acquisition is rejected on anti-trust grounds

Now that its second offer will be rejected, will JetBlue again offer even more?

JetBlue has struggled to grow and essentially wants to buy Spirit Airlines for its aircraft fleet, parts, gates, and labor. There are limited synergies and this is not a traditional tie-up. While JetBlue is no doubt in a difficult place, as its operational struggles seem to worsen and its growth plans stymied, overpaying for a well-established, efficient, and profitable airline only to dismantle it is not the answer.

Consumers Rejoice

For reasons I explained in a previous post, I view Spirit’s rejection as very good news. While I’m not in favor of any merger or further consolation, a tie-up of Frontier and Spirit (two carriers with an ultra-low-cost model) makes a lot more sense to me than combining a full-service carrier (even though it styles itself as a low-cost carrier) with Spirt’s piecemeal approach to selling airline tickets (everything is unbundled). Additionally, the Spirit and Frontier route maps do not overlap in nearly the same way as Spirit and JetBlue.

> Read More On The Spirit Airlines Acquisiton:

• Before Buying Spirit Airlines, JetBlue Should Get Its Own House In Order
• JetBlue CEO Speciously Defends Merger With Spirit Airlines
• What JetBlue Told Employees About Merger With Spirit Airlines

CONCLUSION

I thought that Spirit would conditionally accept the JetBlue offer in hopes that Frontier Airlines would increase its bid. Instead, Spirit has rejected JetBlue’s offer outright. Now the question is whether JetBlue will give up or offer even more for Spirit.

Is JetBlue crazy to offer so much for Spirit Airlines?