JetBlue Gets Hostile With Spirit, Appeals to Shareholders to Fight

Frontier, JetBlue, Mergers/Finance, Spirit

We always knew this was a possibility. Shortly after Spirit set a shareholder vote on June 10 to approve the Frontier merger, JetBlue has decided it isn’t willing to concede defeat. It has now put forth a hostile bid to try to appeal to the shareholders directly.

JetBlue has really done three things here.

  • JetBlue has created the BLUE proxy card which will be sent to all Spirit shareholders to allow them to easily vote against the Frontier deal and align with JetBlue.
  • JetBlue is encouraging all shareholders to exercise their so-called “apprasial rights” which would let a third party determine the fair value of the shares. If the Frontier deal is approved and the third party determines the value is higher than what was paid, then this would force higher cash payments.
  • JetBlue is putting forth a new offer for $30 per share to the shareholders. It says it will go back up to the original $33 per share amount if the board allows it to do proper due diligence, which is clearly meant to get shareholders to pressure the board.

In other words, JetBlue still wants Spirit, and it wants it bad. With these moves, JetBlue is hoping to work around the board, get shareholders riled up, and if nothing else, increase the cost of the Frontier deal. This is so much fun to watch.

When we last left off, Spirit’s board had just blown up the Death Blue Star. CEO Ted Christie handed out medals to all the brave warriors who fought against the Empire, and all was well in the kingdom of South Florida. Or something like that.

Really, what happened as we discussed here is that Spirit’s board rejected the JetBlue offer because it felt that it either wouldn’t be able to pass DOJ muster or it would take way too long to push it through. You can read more about the rationale here.

JetBlue says that’s a bunch of crap. Or since CEO Robin Hayes is British, maybe he’d prefer bollocks. Either way, with the board not backing JetBlue, the Blue Crew had just one option… take it to the people.

JetBlue already thought it had a rich proposal on the table from a financial perspective, but slumping stock prices have made the offer look even more stupid impressive on paper. JetBlue has created to shout its plans to all the Spirit shareholders in the land.

Some of what JetBlue argues is what you’d expect. It says its offer is not only far more valuable but it’s guaranteed to be at that value since it’s a cash offer unlike Frontier’s mix of cash and stock. I don’t disagree with this, so I won’t dwell on the point. But then it targets Spirit’s biggest objections.

Closing Certainty

It is truly remarkable to see Spirit shoot down the JetBlue offer since it doesn’t think the deal can get done while JetBlue says it has a much better chance of completing than Frontier does. This is enough to make your head spin.

JetBlue says it has “firm conviction” that it can get anti-trust approvals. And here’s why, directly from the horse’s mouth:

✓ Economic analysis shows JetBlue’s presence on nonstop routes decreases legacy fares 3x as much as ultra-low-cost airlines
✓ Less overlap in flights, seats, and ASMs than Frontier in metro areas served by both

It does go back to touting the so-called “JetBlue Effect,” saying that since it can bring legacy airline fares down, the feds should welcome this with open arms. Forget that it may mean Spirit fares actually go up. And yes, JetBlue talks about how there’s less overlap between JetBlue and Spirit than there is between Frontier and Spirit, so the deal will go through. That’s a simplistic view that assumes the feds don’t go off script.

It’s pretty amazing to see how the two sides have completely different opinions on this. I suppose you can always pick the right advisors to tell you what you want to hear, especially since nobody really knows what the feds are thinking. They haven’t been too interested in consistency or rationality up to this point, so the opinions of what they’ll actually do when judging a merger can vary greatly.

Clear Divestiture Commitment

Spirit was not happy that JetBlue wouldn’t add a “hell or high water” provision saying it would do anything necessary to close the deal. It says that the JetBlue Northeast Alliance with American was clearly going to take precedence, and it didn’t think that was helpful for getting this deal done.

JetBlue says that’s silly, and that the NEA isn’t anti-competitive at all… as you’d expect it to say. But considering Spirit is one of the main airlines challenging the NEA, it would be pretty insane if Spirit just took JetBlue’s word for it. JetBlue does repeat that it will divest all of Spirit’s assets in New York and Boston to appease the regulators, but it won’t be going any further than that, at least it won’t make any promises.

Further, JetBlue says that if the NEA loses in court, that will “be decided long before the resolution of any challenge to the Spirit transaction [so] by definition it will no longer be an obstacle.” And then, of course, there’s the $200 million reverse break-up fee that JetBlue included in its last offer. Frontier has none.

That’s all true, but one of Spirit’s counterpoints is that this will take a really long time even if it does go through. JetBlue seems to be agreeing here. Of course, a $200 million fee that gets paid in 2 years isn’t worth $200 million today. It’s all just math and probabilities.

This whole thing is just bananas, since you have JetBlue on one side saying its experts believe something and then Spirit on the other side saying its experts belive the exact opposite. Spirit says it is reviewing JetBlue’s proposal, but I see no reason why it would change its mind. There’s nothing improved in this compared to what Spirit already rejected.

So now it’s all down to the shareholders. June 10 is going to be a very interesting day.

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36 comments on “JetBlue Gets Hostile With Spirit, Appeals to Shareholders to Fight

  1. Hmmm… I’m not sure there’s enough drama around Spirit yet. Think anyone can convince Elon Musk to join the party by throwing in a bid of his own, so that this can be a true three-ring circus?

  2. JetBlue is sticking to their guns (as they should) & if things don’t pan out, then at the very least JetBlue made it more costly for spirit to walk down “Frankie Lane.”

    1. That is the part of the story i don’t understand. Spirit management isn’t leveraging B6s offer to get Frontier to improve their’s. Seems Spirit is willing to leave a lot of money on the table or demand better terms ($200M if deal cant be completed)..

  3. Having been a loyal Blue customer since their inception, they need to get their act together rather than buy another carrier. As with UAL/CO and AA /US there will be more confusion and pain before it gets better. Make your own product better, then worry about a merger.

    1. Point taken, but that’s not the reality in the business world. Just ask Apple fanboys about the more recent products being sold & their less than thrilled reactions to them.

    2. But that is exactly what this is about. They are constrained in the NE and don’t have the planes and crews to work their way out of it.

      Being tied to an area that is difficult operationally, they are boxed in. They can buy planes and they can add stations, but they can’t buy trained and experienced crews. They are basically buying Spirit’s planes and crews, then they plan to use those to grow their way out of the constrained NE area.

      1. > they can’t buy trained and experienced crews

        I mean – they really could. Signing bonuses are a thing. It gets tricky because if they’re big enough to be meaningful, then your current employees will also want something. $3+ billion is a big pot to spread around though.

        1. Where are they going to get them? Run down to Kroger? The only place to get experienced crews is other airlines. And If that crew member moves they lose their seniority and are not going to want to start over on reserve.

      2. Yep.
        JetBlue plans to appeal to the DOJ sweet spot when it comes to NYC lucrative LGA slots.
        By Voluntarily giving up ALL of Spirits accents in Key airport like BOS/LGA/EWR and FLL.
        This rings in happiness to all the Anti monopoly democratic congressional views since it promotes more competition and kills the Monopolistic ULCC building deal with NK/F9.

        JetBlue will redeploy the Spirit aircraft from the northeast and FL to build up in other markets like ORD/MCI/DFW/IAH/LAS and LAX.

        Spirit will give JetBlue the opportunity to eliminate a lot of western US leisure connecting traffic from their saturated JFK operations and redeploy those feeds thru a LAS west coast HUB. Both JetBlue and Spirit love red eye and LAS would be the perfect location for a huge Red eye connecting HUB that would make the Original America West Smile.
        With a lot of the JFK Leisure traffic redeployed elsewhere this would allow JetBlue to redeploy a good number of flights to the new Spirit destinations to funnel new lucrative NYC business traffic to feed the TATL network.

        1. JetBlue won’t expand ORD/MCI/DFW/IAH/LAS. They don’t have the stomach to try anything outside of their comfort zone. They started building LAX and doing some point-to-point and now that things are rough again, those are the first to go while JetBlue retreats to a more comfortable geography. They’ll talk a big game about the exciting opportunities within Spirit’s network, but the second they see red ink, they’ll pull the plug.

      3. The can hire pilots from the regionals. FAs can be trained in 5 weeks by hiring alot of 20 somethings. New airlines like Breeze seem to be able to hire staff at minimal cost

        1. Regional pilots won’t have experience in Airbuses. And that takes a lot longer than 5 weeks. You certainly aren’t hiring captains from regionals.

          Would YOU get on a plane where the captain and the FO had combined 100 hours in a bigger plane?

      4. That is the part of the story i don’t understand. Spirit management isn’t leveraging B6s offer to get Frontier to improve their’s. Seems Spirit is willing to leave a lot of money on the table or demand better terms ($200M if deal cant be completed)..

  4. 70% of SAVE stock is held by about a dozen institutional investors. It is beyond silly to think that a public campaign is going to change anything. If JBLU wants to change the calculus of the merger, it will announce that it has met with and succeeded in getting a couple of those big institutional holders like Fidelity to support their campaign.
    Those funds are not run by fools. They know big business well. They know about antitrust concerns including JBLU’s promise to convert SAVE planes to JBLU’s configurations which is by definition an increase in fares and a reduction in seats.
    They also know that hostile takeovers rarely work in service industries and have never worked in the airline industry. Airline employees are fiercely loyal to their employer when external attacks come. To somehow think that SAVE employees will just convert to Blue Koolaid drinkers is beyond naive but it highlights how troubled JBLU’s future is. Not only could the NEA be eroded but JBLU could become a smaller and less significant airline in the US. Alaska took the right path in becoming a domestic oneworld partner.

    1. The institutional investors will only look at the potential return if they take the Frontier/Spirit cash/stock offer versus JetBlue’s cash on the table and how long it might take to get that cash if the DOJ drags their feet on the NEA and/or the acquisition approval.

      They won’t give a damn about configuration changes or employee loyalty, because it won’t affect them – they will not own JetBlue stock if B6 is successful, so why would they care?

      And if the JBLU/SAVE merger is rejected, they’re back to where they are right now.

      1. The institutional investors can recognize that JBLU’s aim is to eliminate a lower cost competitor via an acquisition and THAT has never successfully happened since the US airline industry was deregulated.
        The institutional investors don’t care about what JBLU becomes but they are well aware of the anti-competitive nature of the deal; JBLU isn’t talking about the GREATER ability of SAVE to stimulate traffic than JBLU – but SAVE certainly is because that is exactly what is happening right now.
        The DOT has access to fare information at the market level and realizes that SAVE does a better job of stimulating passengers via low fares than JBLU does.
        Add in that removing seats from SAVE aircraft as part of the reconfiguration to JBLU’s configuration DOES decrease capacity and that is further evidence of anti-consumer friendly strategy.
        Getting rid of SAVE’s NYC assets doesn’t solve the problem unless JBLU also terminates the NEA – which involves far more slots. JBLU management wants the DOJ and everyone else to believe that getting rid of a dozen slots at LGA while gaining access to potentially hundreds via AAL is a fair trade – but the DOJ is smarter than that.

        The simple fact is that JBLU is at the end of its rope strategically, has conceived of the most consumer unfriendly merger in the history of US aviation even as it tries to defend the NEA.

        The institutional investors can see all of this and recognize the chances of getting their money in a JBLU deal is very, very low – and if they do, it will take a very long time. Those chances are simply not worth taking in the highly competitive US airline industry.

        Instead of rehashing the arguments why JBLU should or shouldn’t be allowed to merge with SAVE, the real question is what is JBLU’s next options if the SAVE merger fails and then also if significant parts of the NEA are shot down.

        1. You seem VERY concerned about JetBlue possibly growing, Mr. Dunn. Hmmm, I wonder why??? JetBlue growing at LGA, perhaps? A more viable competitor to Delta? What will you do if JetBlue is unsuccessful with buying Spirit, somehow comes to YOUR consciousness that they are slowly dying, and sells themselves to Southwest? Rest assured knowing that Southwest’s kid glove treatment of Delta in Atlanta will NOT be repeated in New York or Boston. Be careful what you wish for, it might come true.

          1. Since LGA and JFK, Delta’s two primary airports in NYC, are slot controlled, no one will be growing. There might be some trading around of slots which is what the NEA will do – if portions of it are not struck down.
            Southwest is a higher cost carrier than JetBlue so much of JBLU’s network won’t work at LUV’s costs.
            And WN has not achieved more than low double digit share in any Delta hub so I don’t think anyone other than you thinks a merger between LUV and JBLU is possible or even likely.
            And no one is entertaining the possibility that either SAVE or ULCC could counter that they are a better acquisition partner of JBLU because they would add seats and stimulate demand.

            And AirTran was a lower cost carrier than Southwest but they were financially in worse shape, the DOJ probably learned a lot about allowing one low cost carrier take over another and JBLU is a low cost carrier while SAVE is an ultra low cost carrier.

            There has never been a hostile takeover in the airline industry of an airline of a lower fare type as JBLU is proposing.

            Suggesting that there might be a first time so it is ok to risk it is not what responsible money managers do.

            btw, the way the market “votes” on the validity of company strategies is to bid up or push down their stock. SAVE and JBLU are the two worst performing airline stocks over the past month while the big 4 are at half or less of that decline in an overall market that is decreasing.

          1. Yes, yet they were treading water financially while Southwest was consistently profitable. Genuine (not snarky) question: What is the point of your remark, Chuck MO?

            1. Replying to a comment that appears to have been removed, regarding that no US airline bought a lower cost competitor to eliminate said competition.

      2. If a person were the manager of a fund with a stake in Spirit that (in early June) looked like it would be on track to just miss its benchmark for Q2 or 2022.1H returns, it might be VERY tempting to give JetBlue a call and see if it might be interested in buying their Spirit shares at a price above that of the market, if just to help juice returns and make numbers.

        Yes, June 10 isn’t THAT close to the end of Q2 (and I’m not in the industry and there may well be legal/ethical/etc constraints in this), but something like this might well happen.

    2. One of the things I’ve also heard about the funds, is many of them don’t really want cash, as they’d just have to turn around and redeploy that. That is especially true for funds that are focused on a specific sector. If they get cash for their Spirit shares, they’ll just have to redistribute it and buy other shares, which isn’t the case to the same degree with the Spirit/Frontier merger.

  5. CF wrote: “It’s pretty amazing to see how the two sides have completely different opinions on this. I suppose you can always pick the right advisors to tell you what you want to hear, especially since nobody really knows what the feds are thinking. They haven’t been too interested in consistency or rationality up to this point, so the opinions of what they’ll actually do when judging a merger can vary greatly.”

    To which I respond: Truer words were rarely written. That’s the nature of experts, polls, studies, etc. Tell the person or party paying for the opinion what he/she/it wants to hear.

    As for the hostile takeover, I fully expected it to happen, and I’m not alone in that opinion. JetBlue can always buy Spirit stock on the open market. Once it accumulates 5%, it has to file with the SEC that it’s done so. If enough institutional investors want to cash out, JetBlue may very well accumulate enough shares to take over Spirit, or make this whole business even more interesting. To wit: If JetBlue can accumulate roughly enough of the outstanding Spirit shares, and the Frontier/Spirit hookup is approved by a majority of Spirit’s shareholders, that could create a situation where JetBlue would be a major shareholder in that newly merged airline.

    Stay tuned …

    1. I just looked up Spirit shares, and they’re selling at 19.50, up $0.23 as of 8:36 a.m. Pacific time Tuesday. There’s nothing stopping JetBlue from buying those shares at a significant discount t its offer price. One of the downsides of the extra cash most airlines have due to the pandemic is that all of that cash can essentially be used as part of the acquirer’s financing.

      This transaction isn’t about the employees, unless they own Spirit stock. This isn’t “Keep Delta My Delta.” It’s true that hostile takeovers are extremely rare in the airline industry, but there’s usually a first time for everything. I have no skin in the game, but this could get interesting. Again… Stay tuned.

    2. > JetBlue can always buy Spirit stock on the open market. Once it accumulates 5%, it has to file with the SEC that it’s done so. If

      Acquisitions of large public companies aren’t done that way. The acquirer might acquire a single-digit percentage in the open market to gain a “toehold”, but after that they will use a tender offer to buy the entire rest of the company in single transaction.

      Also, if you acquire more than $101 million of a company’s stock (which would be ~4.7% of Spirit Airlines at its current market cap), you have to undergo antitrust review from the FTC before buying any more. That puts a hard ceiling on how much of a toehold JetBlue can reasonably acquire, because they’re definitely not going to start that antitrust review process before they have a deal in hand for the whole company.

      1. @Alex,

        With all due respect, did I write that JetBlue can acquire a controlling interest in Spirit by buying stock on the open market? No.

        I mentioned (and you copied and pasted) that once JetBlue acquires 5% of Spirit’s shares it has to notify the SEC.

        So your point is? I simply pointed out that JetBlue can buy stock on the open market. No more, no less.

          1. To reiterate, I simply pointed out that JetBlue can buy stock on the open market.

            No more, no less.

            No more, no less.

            No more, no less.

  6. “Of course, a $200 million fee that gets paid in 2 years isn’t worth $200 million today. It’s all just math and probabilities.”

    A $200 million fee that gets paid today isn’t worth $200 million today, its worth $106 million, since Spirit has to pay Frontier a breakup fee.

    I’m curious if we’ll see Spirit adopt a poison pill. The mechanics of it get a bit trickier given the pending merger. Also, how exactly does a tender offer work? Surely JetBlue isn’t just buying shares that they’ll later have to sell when the Frontier/Spirit merger is approved.

  7. Love BF as C3PO! (Yes I noticed)

    My question is where will JetBlue turn next? Looking forward to Return of the Jedi poster and who Cranky will tag as Jabba the Hutt

    1. This wouldn’t work because JetBlue’s costs, or at least their labour costs, would go up to AA levels, defeating the purpose of such a merger.

      The two companies’ pilot unions would be at war immediately, with the company trying to keep a two-tier pay scale, both unions rejecting that idea, and the AA pilots wanting the B6 pilots stapled to the seniority list, leading to conflict with the B6 union.

      There’d also be the same antitrust issues that surround the NEA, plus the loss of price competition (right now B6 and AA can coordinate schedules but not fares.)

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