JetBlue Agrees To Buy Spirit in $3.8 Billion Deal

The announcement of the transaction comes a day after Spirit and longtime suitor Frontier Airlines (NASDAQ: ULCC) agreed to abandon a merger proposal they had announced in February just before Spirit was to announce the result of a shareholder vote on the merger. Frontier and JetBlue had waged a bidding war over Spirit since April.

Under the agreement, JetBlue will pay $33.50 in cash for each Spirit share, including an advance payment of $2.50 per share payable as soon as Spirit shareholders approve the deal. The transaction also includes a fee of 10 cents a month beginning in January and running until the deal closes. This so-called ticking fee is a device companies use to compel each other to complete transactions as quickly as possible. They often come into play when companies have concerns or doubts about regulatory approval.

JetBlue has long said that acquiring Spirit would make the combined company a stronger competitor to the “big four” airlines in the U.S.: American Airlines Group Inc. (NASDAQ: AAL), Delta Air Lines Inc. (NYSE: DAL), United Airlines Holdings Inc. (NASDAQ: UAL), and Southwest Airlines Co. (NYSE: LUV).

“The four largest carriers control more than 80 percent of the market. Creating a low-fare, customer-centric challenger with size and scale is the best opportunity to disrupt legacy carrier pricing in the current landscape,” the company said in a statement.

With the new deal in place, Spirit executives sound more agreeable. 

“We are thrilled to unite with JetBlue through our improved agreement to create the most compelling national low-fare challenger to the dominant U.S. carriers, and we look forward to working with JetBlue to complete the transaction,” Spirit president and CEO Ted Christie said in a statement.

However, when JetBlue stepped in with its bid, Spirit and Frontier accused the company of simply trying to thwart potential competitors. Since then, Spirit had continued to support the Frontier deal for cash and stock even as JetBlue sweetened its offer. Industry watchers have suggested Spirit leaders could soon face a reckoning regarding their previous opposition to the higher-valued JetBlue all-cash bid.

There is more difficult work ahead as the companies seek approval from regulators in a political environment rife with skepticism regarding corporate consolidation in general and airline operations in particular. Frontier and Spirit had previously said regulators are likely to reject a merger between JetBlue and Spirit. The Justice Department is also suing JetBlue and American Airlines over a partnership between the two carriers with a trial set to begin this fall.

JetBlue has agreed to pay a $70 million fee to Spirit and $400 million to the company’s shareholders if antitrust regulators do not allow the deal to go through. The airline also said it is confident it can handle the regulatory process successfully. In their announcement, JetBlue and Spirit said they expect to complete the acquisition no later than the first half of 2024, pending a vote by Spirit shareholders.