Spirit to talk with JetBlue about $3.6b takeover bid

Bloomberg

Spirit Airlines Inc will hold talks with JetBlue Airways Corp over its $3.6 billion cash takeover bid that’s threatening to disrupt a pending combination between Spirit and rival deep discounter Frontier Group Holdings Inc.
JetBlue’s offer could lead to a superior proposal, Spirit said in a statement after assessing the bid with financial and legal advisers. JetBlue’s unsolicited offer topped Frontier’s $2.9 billion cash-and-stock purchase deal, which Spirit agreed to two months ago.
Further details on the timing of the JetBlue and Spirit discussions weren’t disclosed. Spirit’s board hasn’t changed its
recommendation that shareholders adopt the merger agreement with Frontier, and there can be no assurance talks with New York-based JetBlue will result in a transaction, the statement said. JetBlue said in a separate statement that it was pleased Spirit’s board recognised the “compelling value for all stakeholders” of its takeover proposal. JetBlue’s unsolicited offer is for $33 per Spirit share.
Any purchase would provide a burst of growth that JetBlue can’t otherwise attain, and create a secure supply of new Airbus SE planes for the future. But market overlap in the eastern parts of the US could raise antitrust questions at the same time JetBlue is battling a federal lawsuit over a business alliance with American Airlines Group Inc.
“Spirit’s board must now weigh the immediate value of JetBlue’s offer versus the longer-term potential upside of Frontier’s primarily stock-for-stock offer,” Duane Pfennigwerth, an Evercore ISI analyst, said in a report. “Of course, Spirit must also weigh the probability of regulatory approval.”
Any purchase agreement will be scrutinised by federal antitrust enforcers to see if it allows the combined carriers to control too much of any one market. For JetBlue and Spirit, that primarily would be in the eastern US, particularly Florida. JetBlue’s costs would necessarily rise as it converts Spirit’s bare-bones business and aircraft to its own corporate model.
Meanwhile, under the pending agreement, holders of Denver-based Frontier would own 51.5% of the combined company and get to name seven of the 12 directors. The deal includes a $94.2 million breakup fee.
Goldman Sachs Group Inc is serving as JetBlue’s financial adviser while Shearman & Sterling LLP is the legal adviser. Barclays Plc and Morgan Stanley are working with Spirit, along with Debevoise & Plimpton LLP.