Spirit Airlines (SAVE) Stock Plunged After Rejecting JetBlue’s Offer…

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Simon Mugo
Updated: 2 May 2022

Key points:

  • The Spirit Airlines board today rejected JetBlue’s revised offer.
  • The board cited the regulatory hurdles that would bedevil the acquisition.
  • Investors were unhappy with the move, but the board’s reasons were valid.

Investors woke up today to news that JetBlue Airways (NASDAQ: JBLU) had submitted a superior acquisition offer for Spirit Airlines Incorporated (NYSE: SAVE) that was much better than the $2.9 billion offer from Frontier Airlines.

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JetBlue’s revised offer included a $200 million reverse breakup fee if the merger failed to get approval from regulators based on antitrust reasons. Yet, the Spirit Airlines board rejected the offer in favor of Frontier’s much lower bid.

Investors were not pleased with the board’s decision. JetBlue had committed to divesting all Spirit assets in New York and Boston so that JetBlue does not increase its presence in the airports covered by its Northeast Alliance (NEA) with American Airlines.

The Spirit Airlines board cited that JetBlue’s offer was not superior since the company’s shareholders will be taking on “an unacceptable level of closing risk” since regulators could raise multiple antitrust issues.

JetBlue’s all-cash offer is also materially superior to Frontier’s offer, given that JetBlue was offering $33 per outstanding share, while Frontier is offering $22.44 per share in cash and stock.

The two airlines are competing to acquire Spirit Airlines to compete more strongly with the big four airlines that control 80% of the US airline travel industry. However, we cannot ignore the reasons given by the Spirit Airlines board.

In a letter to JetBlue CEO Robin Hayes, the board clarified that: “We believe a combination of JetBlue and Spirit has a low probability of receiving antitrust clearance so long as JetBlue's Northeast Alliance (NEA) with American Airlines remains in existence,”

JetBlue might have to unwind its Northeast Alliance with American Airlines to stand a chance of acquiring Spirit Airlines or any other airline for that matter. In addition, investors should not forget that the Justice Department and six states had sued to undo the Northeast Alliance in September, saying that the agreement could lead to higher fares in the busy airports in the region.

Therefore, while Spirit Airlines shareholders may have to settle for the inferior offer from Frontier Airlines, JetBlue has to rethink its interest, especially the Northeast Alliance with American Airlines, which could prove to be a significant stumbling block in future.

Spirit Airlines shares were down 8.77% at writing, Jetblue stock was up 0.64%, while Frontier Airlines stock was down 2%.

*This is not investment advice. Always do your due diligence before making investment decisions.

Spirit Airlines stock price.

Spirit Airlines stock price 02-05-2022
Source: Tradingview

Spirit Airlines' stock price plunged 9.27% to trade at $21.42, falling from Friday’s closing price of $23.61.

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