JetBlue Launches Hostile Takeover Bid for Spirit Airlines

Leslie Josephs | CNBC
  • JetBlue Airways launched a hostile takeover bid of Spirit Airlines on Monday.
  • JetBlue originally offered $33 a share, a deal that Spirit's board declined in favor of an earlier plan to merge with Frontier Airlines.
  • Spirit CEO Ted Christie said JetBlue was "putting misinformation into the market."

JetBlue Airways launched a hostile takeover bid for Spirit Airlines, heating up a battle for the discount carrier that rebuffed JetBlue's $3.6 billion offer earlier this month and stuck with an existing deal to combine with Frontier Airlines.

JetBlue on Monday offered Spirit shareholders $30 a share as part of a tender offer and in a proxy statement urged them to vote against the Frontier deal during a June 10 Spirit shareholder meeting. The company also said its earlier offer of $33 per share is still on the table if Spirit decides to negotiate. Spirit's shares closed Friday at $16.98.

JetBlue turned down the JetBlue bid earlier this month in favor of a $2.9 billion stock-and-cash deal it struck with Frontier in February. Spirit's board said it doesn't think U.S. regulators would approve an acquisition by JetBlue.

JetBlue called that rationale a "smokescreen to distract from the fact that its merger with Frontier faces similar regulatory risk." CEO Robin Hayes said in a staff note that the airline is offering to buy shares from Spirit shareholders "at a price slightly lower than our original offer because the Spirit Board didn't follow a fair process or allow us to look 'under the hood' like they allowed Frontier to do."

Spirit's CEO Ted Christie took issue with those comments later Monday and said the airline's board put a "tremendous amount of effort" into reviewing the JetBlue offer. In an interview with CNBC's "Power Lunch," he said JetBlue was "putting misinformation into the market." Spirit is reviewing JetBlue's tender offer.

Deal rationale

JetBlue has said acquiring Spirit would give it access to a large fleet of Airbus planes, trained pilots and the ability to better compete against the "Big Four" U.S. airlines that control most of the U.S. market. Spirit and Frontier say a combination of those two discount carriers would allow them to grow and compete more easily.

Either combination for Spirit would create the country's fifth-largest carrier.

Spirit and Frontier operate a similar model of tighter seating, ultra-low fares and fees for everything else, while JetBlue operates as a more full-service airline featuring free Wi-Fi, seat-back TVs and a business class on several routes.

"Despite SAVE and Frontier having slight differences, the operating models between the two are similar enough to drive efficiencies," Jefferies aviation analyst Sheila Kahyaoglu said in a note Monday. "JBLU is a more direct competitor to the legacy network carriers, particularly in the premium markets where network carriers have shifted focus."

She added that Frontier and Spirit would likely expand at the same rate whether they're combined or separate "with the combination only improving operational efficiency and cost efficiencies with scale."

Bill Franke, Frontier's chairman and a longtime budget airline investor, used to be the chairman of Spirit. He left in 2013, and his investment firm Indigo Partners bought Frontier. Franke and Frontier didn't respond to requests for comment Monday.

JetBlue's Hayes suggested that previously-laid plans for Spirit and Frontier to combine were hurting Spirit shareholders.

"The Spirit Board's flat-out rejection of our offer is a troubling sign that they do not have their shareholders' best interests in mind. So, what is the Spirit Board thinking?" Hayes said in his employee note. "Our guess is that there are a lot of historical ties and personal relationships between the controlling shareholder of Frontier and some of the Spirit Board members who agreed to the Frontier deal."

JetBlue at a crossroads

Spirit's rejection of JetBlue's $3.6 billion cash offer it made last month put the New York-based airline at a crossroads. Hayes said a Spirit acquisition would "supercharge" its growth at a time when demand for new narrow-body planes is high and pilots are in short supply.

Spirit earlier this month said it turned down JetBlue's offer because it didn't believe the deal would be approved by regulators. It said part of that rationale was JetBlue's partnership in the Northeast with American Airlines, which the Justice Department sued to block last year. Spirit's CEO earlier said during an earnings call earlier this month said that he has "wondered whether blocking our deal with Frontier is in fact their goal."

American declined to comment.

Spirit further turned down additional terms from JetBlue that might have eased regulatory concerns, including an offer to divest some of Spirit's assets in Florida, New York and Boston. JetBlue also offered to pay a $200 million reverse breakup fee if the deal wasn't approved by regulators on antitrust grounds.

Transportation Secretary Pete Buttigieg declined to comment on the deal Monday and said the DOT would help support any Justice Department analysis of a deal.

"The most important thing is to make sure the American people are served well by a healthy airline sector, and part of a healthy airline sector, part of any healthy sector in our economy, is healthy competition," he said in interview with CNBC's "Squawk Box."

Spirit shares surged more than 13% Monday, while JetBlue's fell more than 6%. Frontier shares ended the day up close to 6%, while the S&P 500 lost 0.4%.

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