JetBlue finally succeeds in buying Spirit Airlines

Shares of Spirit Airlines Incorporated (NYSE: SAVE) are up nearly 5.0% on Thursday after the ultra-low-cost air carrier agreed to merge with JetBlue Airways Corporation (NASDAQ JBLU).

Merger to face intense scrutiny

The $3.80 billion all-cash transaction that’s pending regulatory approval values “SAVE” at $33.50 a share – a 35% premium on its current stock price.

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The merger is expected to face intense scrutiny considering that it effectively removes a budget airline from the competition. Still, JetBlue CEO Robin Hayes said on CNBC’s “Squawk Box”:

In the U.S, the issue is that four large airlines have about 80% of the market. So, the best thing we can do to create a more competitive industry is empower this new, larger JetBlue that brings low fares and great service together.

He’s convinced the agreement will help JetBlue bring lower fares to more destinations than before. JBLU is down 3.0% this morning.

Spirit CEO’s remarks on CNBC

JetBlue says it will make a prepayment of $2.50 a share to Spirit shareholders once they approve the deal. Starting next year, it’ll also pay a ticking fee (10 cents per month) through the time it takes to complete the acquisition.

Spirit Airlines was quite vocally in favour of a merger with Frontier instead of JetBlue ever since the latter made its first offer in April. Commenting on why the change of heart, CEO Ted Christie said on the same interview with CNBC:

We always had our stakeholders in mind. We had a merger agreement; we were actively soliciting. Now, we have a very exciting transaction on behalf of our shareholders; going to deliver a lot of value.

Upon closing, the New York-based joint airline will be led by Robin Hayes (JetBlue CEO).