After reviewing a revised proposal from JetBlue Airways that offered a $200 million reverse break-up fee should the transaction not close due to antitrust reasons, Spirit Airlines' board of directors unanimously rejected the carrier's bid in favor of its proposed merger with Frontier Airlines, Spirit announced Monday. The JetBlue proposal "is not reasonably capable of being consummated," according to Spirit's board.
"After a thorough review and extensive dialogue with JetBlue, the board determined that the JetBlue proposal involved an unacceptable level of closing risk that would be assumed by Spirit stockholders," Spirit chairman of the board H. McIntyre Gardner said in a statement.
Spirit's board cited the U.S. Department of Justice's antitrust suit against JetBlue's partnership with American Airlines, dubbed the Northeast Alliance, as a key reason why it expects a would-be acquisition of Spirit by JetBlue to fail.
Frontier Airlines in February announced an agreement to purchase Spirit for about $2.9 billion in cash and stock. At the time, boards of both carriers had unanimously approved the proposed deal. JetBlue on April 5 made an unsolicited competing bid for Spirit for $33 per share in cash, valued at $3.6 billion. According to the merger agreement Frontier filed in February, Spirit could walk away from the Frontier deal if Spirit's board determined it had received a "superior proposal" and pay Frontier $94.2 million in cash.
In addition to the $200 million reverse break-up fee, JetBlue also offered in its revised proposal a "remedy package" to address concerns about the Northeast Alliance. The package would include "the divestiture of all Spirit assets in New York and Boston so that JetBlue does not increase its presence in the airports covered by the NEA," according to JetBlue. "The package would also include gates and assets at other airports, including Fort Lauderdale."
In a May 2 letter to JetBlue CEO Robin Hayes, Spirit's Gardner and CEO Edward Christie III wrote that Spirit "has a low probability of receiving antitrust clearance so long as JetBlue's Northeast Alliance with American Airlines remains in existence. The U.S. Department of Justice, along with Attorneys General in six states and the District of Columbia, have sued to block the NEA, alleging that the alliance 'will not only eliminate important competition in (Boston and New York City), but will also harm air travelers across the country by significantly diminishing JetBlue's incentive to compete with American elsewhere, further consolidating an already highly concentrated industry.' "
Spirit responded to JetBlue on April 25 that it proposed a "strong covenant requiring JetBlue to take any action required to obtain regulatory clearance, which specifically included abandoning the NEA at closing," according to Spirit. Monday's letter to JetBlue noted that JetBlue's revised proposal "makes clear that JetBlue is unwilling to terminate the NEA."
JetBlue did not immediately respond to a request for comment.