Spirit Airlines (NK, Fort Lauderdale International) has rejected the unsolicited USD3.6 billion (USD33 per share) takeover offer that JetBlue Airways (B6, New York JFK) submitted one month ago, saying it does not concur with its rival’s claim that it constitutes a “superior proposal” to its previously agreed merger deal with Frontier Airlines (F9, Denver International).

Frontier and JetBlue have engaged in a battle for the ultra-low-cost carrier (ULCC), as a merger would in JetBlue’s words “create a national competitor to the Big Four” legacy carriers that control most of the United States passenger market.

JetBlue said on May 2 that it had enhanced its proposal to Spirit - though not raising the USD33 per share - claiming this offered shareholders “both superior financial value and greater certainty than the Frontier transaction,” by:

  • agreeing to divest assets of JetBlue and Spirit up to a material adverse effect on Spirit;
  • providing “a remedy package” to address regulatory concerns in New York and Boston so JetBlue does not increase its presence at airports covered by the American Airlines/JetBlue Northeast Alliance (NEA) partnership;
  • promising a USD200 million reverse break-up fee of USD1.80 per Spirit share if the deal does not go through for antitrust reasons.

In response on the same day, Mac Gardner, board chairman at Spirit Airlines, reiterated his support for the Frontier deal, saying that “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” and that such an agreement had a low chance of securing the approval of government regulators.

JetBlue’s offer is clearly higher than Frontier’s USD2.5 billion (USD22.42 per share) bid, but one of Spirit’s key concerns about JetBlue is that the US Department of Justice sued it in September in an attempt to unwind the NEA in an antitrust lawsuit. The legal proceedings are ongoing.

JetBlue’s ongoing tweaks to its offer make it clear it “is unwilling to terminate the NEA [...] to obtain clearance for an acquisition of Spirit,” Gardner told JetBlue CEO Robin Hayes in a letter on May 2. “By prioritising the NEA over the steps we believe would be necessary to have any realistic likelihood of obtaining antitrust clearance, it imposes on our stockholders a degree of risk that no responsible board would accept. Given this substantial completion risk, we believe JetBlue’s economic offer is illusory, and Spirit’s board has not found it necessary to consider it.”

He further said that “Spirit believes the DOJ - and a court - will be very concerned that a higher-cost/higher fare airline would be eliminating a lower-cost/lower fare airline in a combination that would remove about half of the ULCC capacity in the United States.”

In a letter to staff, also penned on May 2, Frontier declared: “Good news - we are moving ahead with our combination with Spirit. This morning, Spirit announced that its board of directors unanimously reiterated its support for the combination of Frontier and Spirit and determined not to proceed with JetBlue’s proposal.”