JetBlue’s new offer puts rival Frontier in hot seat

JetBlue Airways Corp isn’t giving up in its pursuit of Spirit Airlines Inc But a revamped bid raises more questions for Spirit shareholders trying to decide which offer to back.
JetBlue once again tweaked its proposal for Spirit in an effort to thwart the ultra-low cost carrier’s plans to sell itself to Frontier Group Holdings Inc. JetBlue is now offering to pay a $350 million breakup fee — up from $200 million — in the event antitrust regulators block the transaction. The move comes after Frontier amended its own proposal to add a $250 million reverse termination fee amid criticism from proxy firm Institutional Shareholder Services Inc about the lack of one. But Frontier declined to rejigger the terms of its bid to bridge the wide financial gap between what JetBlue is offering. JetBlue is also proposing to pay about half of that $350 million fee upfront as a dividend payment to Spirit holders, should they vote to approve a transaction.
The bottom line is that JetBlue’s bid is still materially higher than Frontier’s, and it’s clearly motivated to fight for the chance to acquire Spirit. JetBlue is offering more than $30 a share in cash for Spirit (more on the specifics in a moment), or about $7 billion including the assumption of debt. Frontier’s stock-and-cash offer was valued at about $21 a share based on the trading prices. JetBlue likely faces a more challenging antitrust review, but both deals carry regulatory risks. JetBlue’s odds of closing a deal aren’t so impossible that Spirit shareholders can simply overlook the higher offer.
That said, the latest proposal from JetBlue carries some interesting asterisks. A footnote in the press release cautions that the dividend payment is “subject to any CARES Act limitations.” The Coronavirus Aid, Relief, and Economic Security Act of 2020 provided up to $25 billion in loans to passenger airlines but required limitations on share repurchases and barred carriers from paying dividends or other capital distributions with respect to common stock until a year after the loan had been repaid.
JetBlue participated in this financial aid program and repaid its borrowings from the government in September 2021, according to its regulatory filings. Asked about dividend payments last month at JetBlue’s annual meeting, Chief Financial Officer Ursula Hurley said, “at this point, we have no plans to pay dividends as we are unable to pay dividends, given the restrictions from the CARES Act financial support that we received throughout Covid.” This is at most a temporary restriction, and it’s not clear whether the limitations would extend to dividends paid to another company’s shareholders. JetBlue said it would pay $164 million ($1.50 a share) “up front” and “promptly” after Spirit shareholders vote to back a deal, but CARES Act considerations suggest that the payout could take slightly longer.
JetBlue’s press release also makes no mention of its initial $33-a-share offer. That bid was still on the table as of last month, pending due diligence, according to JetBlue’s previous update on its proposal. Monday’s offer is for a total of $31.50 a share —$30 paid upon closing plus the $1.50 a share from the prepaid reverse termination fee — “in a negotiated transaction.” It’s not clear what — if anything — happened to JetBlue’s willingness to pay $33 a share, but the absence of that particular number from the announcement is notable.
Finally, Spirit has repeatedly indicated that it finds the stock component of Frontier’s bid particularly attractive because it allows the company’s shareholders to participate in future upside for the combined company, whereas in JetBlue’s all-cash deal, investors’ financial payout would be capped at whatever the final terms end up being. The stock component of Frontier’s offer was also called out as a benefit for Spirit shareholders by proxy firm Glass Lewis & Co. And yet through all the twists and turns to date, JetBlue has declined to add a stock component to its offer. This is somewhat unusual as equity is traditionally considered an easier way to sweeten a deal than offering more cash, which would require raising more debt and bloating the balance sheet.
JetBlue’s reluctance to add a stock component may reflect a need to get permission from its own shareholders to make such an issuance and doubts about their willingness to sign off on such a plan. JetBlue shares have slid almost 30% since the airline’s pursuit of Spirit was first reported in early April.
Spirit shareholders are scheduled to vote on the Frontier deal on June 10. Frontier could make the decision a lot easier for them by finally taking JetBlue’s proposal seriously and raising its own offer.

—Bloomberg

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. A former M&A reporter for Bloomberg News, she writes the Industrial Strength newsletter