JetBlue Goes Hostile With Reduced $3.3 Billion Spirit Bid

(Bloomberg) — JetBlue Airways Corp. made a hostile $3.3 billion cash bid for Spirit Airlines Inc., appealing directly to shareholders in an effort to prevail over a rival offer for the discount carrier by Frontier Group Holdings Inc.

Most Read from Bloomberg

The JetBlue proposal is worth $30 a share, $3 less than its initial approach, which was spurned by Spirit’s board two weeks ago. The New York-based company said Monday it will pay the higher price should a “consensual transaction” be agreed. JetBlue’s latest offer is a 77% premium to the value of Spirit’s closing price on Friday.

Spirit shares climbed 8.4% to $18.40 at 9:35 a.m. in New York. JetBlue shares fell 2.5% and Frontier rose 4%.

“This signals that the original JetBlue offer was a serious one, as opposed to one just trying to scuttle the Spirit-Frontier deal,” said Savanthi Syth, a Raymond James Financial Inc. analyst.

See also: JetBlue Gets $3.5 Billion Financing for Spirit Takeover

The move marks the latest twist in the takeover tussle for Miramar, Florida-based Spirit. JetBlue is banking on the acquisition as its best shot at near-term growth, even though the deal would mean combining its own full-service product with a model based around offering rock bottom prices and charging for every extra.

Spirit rejected JetBlue’s earlier unsolicited $3.6 billion proposal over concerns that antitrust issues would stop it from being consummated, and stuck with its agreement to be acquired by Denver-based Frontier for $2.9 billion. Spirit and Frontier didn’t immediately respond to requests for comment.

Spirit management’s proposed deal with Frontier, which includes stock, is “high risk and low value,” JetBlue said in a statement, urging investors to reject it at a meeting scheduled for June 10.

Letter to Shareholders

JetBlue set up a website — www.JetBlueOffersMore.com — and issued a letter to Spirit shareholders as part of its attempt to derail the Frontier deal, with Chief Executive Officer Robin Hayes arguing that his own proposal offers more value, more certainty and more benefits for all stakeholders.

Hayes also sought to justify the bid in a letter to his own employees, saying that “by voting against the Frontier merger, Spirit shareholders can push the Spirit board back to the table to give us the information we need and negotiate a merger agreement with us, perhaps at our original price.”

He said the combination would in turn create “a true national low-fare competitor” to big four US carriers American Airlines Group Inc., Delta Air Lines Inc., United Airlines Holdings Inc. and leading discounter Southwest Airlines Co.

A Frontier-Spirit Airlines combination, though not so big, would create the largest US deep discounter just as domestic leisure travel bounces back from the Covid-19 pandemic. Under the Frontier deal, investors in Spirit would receive 1.9126 Frontier shares and $2.13 in cash for each Spirit share. Frontier shareholders would own 51.5% of the combined company.

Spirit has said JetBlue’s bid could by compromised by a federal lawsuit against its alliance with American Airlines in the northeast US, and that its board didn’t consider financial details after determining it had little chance of gaining regulatory approval. Claims that the antitrust lawsuit against the Northeast Alliance with American could be a factor in the takeover bid “has no basis in fact or in law,” JetBlue said.

Spirit Links

JetBlue took aim at Spirit’s links to Bill Franke, the self-proclaimed father of ultradiscounting whose Indigo Partners owns the majority of Frontier’s shares. Franke, who serves as Frontier’s chairman, led Spirit’s conversion to an ultradiscounter about 15 years ago, and in 2013 used proceeds from selling Indigo’s 17% stake in Spirit to purchase Frontier out of bankruptcy and convert that carrier to the ultra-low-cost model.

Spirit’s board “is prioritizing its own self-interest and personal relationships with Frontier over its shareholders’ interests,” JetBlue claimed.

A Spirit deal would give JetBlue, hounded by Wall Street analysts for much of its 23-year history over cost creep, access to an organization and management team highly focused on keeping operating expenses in check. JetBlue lost out in its only other takeover attempt when it was outbid by Alaska Air Group Inc. for Virgin America in 2016.

(Updates with opening shares in third paragraph)