JetBlue JBLU -3.21%▼ Airways Corp. agreed to buy Spirit Airlines Inc. SAVE 2.55%▲ for $3.8 billion, a combination that would create the fifth-largest U.S. carrier.
The deal announced Thursday comes after The Wall Street Journal reported that the two sides were close to sealing an agreement after a monthslong bidding war between JetBlue and Frontier Group Holdings Inc. ULCC 8.67%▲
JetBlue will pay $33.50 in cash for each share of Spirit, including a prepayment of $2.50 a share payable once the deal has been approved by Spirit shareholders. The deal also includes a so-called ticking fee of 10 cents a month starting in January until the deal closes.
Shares of Spirit rose nearly 4% in premarket trading to $25.25 a share, while JetBlue stock was up 1% to $8.49. Shares of Frontier rose more than 6% in the premarket to $12 a share.
The new deal culminates JetBlue’s efforts to wrest Spirit away from Frontier—a rival budget carrier that had struck a deal to buy Spirit when JetBlue swooped in with a competing offer. Spirit and Frontier called their merger off Wednesday, clearing the way for the airline to come to terms with JetBlue.
WSJ’s George Downs explains why low-cost carrier Spirit was coveted by two airlines and what a deal could mean for your travel plans. Illustration: George Downs
JetBlue has said that buying Spirit would make it a more formidable competitor to the four carriers that dominate U.S. air travel: American Airlines Group Inc., Delta Air Lines Inc., United Airlines Holdings Inc. and Southwest Airlines Co.
Getting to an agreement was a rocky process. JetBlue and Spirit had been locked in an unusually acrimonious and public battle since April, with Spirit staunchly defending its previous plans to merge with Frontier in what became the industry’s most heated contest in years. JetBlue had accused Spirit’s board of not looking out for shareholders’ best interests in spurning JetBlue’s offer, while Spirit and Frontier suggested that JetBlue was merely trying to spoil their deal and fend off a potential new rival.
“Where we are today is we’ve got an exciting merger agreement with JetBlue. It’s going to create a very large, national low-cost carrier,” Spirit Chief Executive Ted Christie said in an interview. “Many things were said, but business is business.”
Initially it seemed unlikely that JetBlue would be able to break Spirit and Frontier apart—the two companies are closely linked and had been discussing a combination for years. Spirit initially turned JetBlue down, arguing that the Frontier deal had a better chance of passing muster with regulators and would be better for investors in the long run. But JetBlue continued to press the issue, sweetening its offer several times. Spirit and Frontier struggled to persuade Spirit’s shareholders to back Frontier’s cash-and-stock bid, which was worth about $1 billion less than JetBlue’s offer as of earlier this week.
The final price the two companies agreed to hasn’t changed from JetBlue’s previous offer of $33.50 per share, with some of that payment coming right away once Spirit’s investors sign off on the deal.
Read More (...)