JetBlue has commenced a hostile all-cash takeover bid for Spirit Airlines, according to reports, just days after the airline rejected an offer from it. JetBlue earlier offered $33 per share, and is now in a takeover battle for Spirit with Frontier. JetBlue said its deal would help better compete with the legacy airlines that control nearly 80 percent of the passenger market.

JetBlue said on Monday it had filed a “Vote No” proxy statement, urging Spirit shareholders to vote against the planned merger with Frontier, Reuters said.

In an open letter to Spirit shareholders, published Monday, JetBlue said it was confident it would win regulatory approval.

“Our recent economic analysis, using Department of Transportation Data, shows JetBlue’s presence on a nonstop route decreases legacy fares by ~16%, about three times as much as the presence of an ultra-low-cost carrier. This phenomenon is well-established and foundational to JetBlue’s business model.

“We are not the only ones who cite the JetBlue Effect. Coined by an MIT study in 2013, the JetBlue Effect has been acknowledged by the Department of Justice (DOJ) as recently as 2021 when it said, ‘JetBlue’s reputation for lowering fares is so well known in the airline industry that it has earned a name: the ‘JetBlue Effect.’ JetBlue’s record in Boston and New York illustrates why.”

Meanwhile, JetBlue said that any Frontier deal isn’t less risky, and warned shareholders they would be “misled” if they thought otherwise.

“Both transactions would create the #5 player with very similar market share. A combined JetBlue and Spirit would have an 8% market share based on full year 2021 seats compared to 7% for a combined Frontier and Spirit. Frontier overlaps with Spirit on significantly more nonstop routes (104) than JetBlue (54)10, and JetBlue has less overlap in flights, seats, and ASMs than Frontier in the metropolitan areas served by both11,” JetBlue said in the latter.

JetBlue also pushed forward the idea they would receive greater financial rewards. In the letter it added: there was “more value and more certainty for Spirit shareholders with our all-cash offer. JetBlue offers you $30 per share in cash, representing a 60% premium to the value of the Frontier transaction as of May 13, 2022 , a 77% premium to Spirit’s latest closing price, and a 38% premium to Spirit’s unaffected share price.”

JetBlue also claimed there would be better trading value in the short term.

“… We expect the outcome of the Spirit special meeting to influence how the Spirit shares will trade in the short term. Based on the trading patterns since the Frontier transaction was announced, we expect that, if the transaction is approved, Spirit’s shares will trade at approximately $177. On the other hand, based on what we observed since our proposal became public, if the Frontier transaction is rejected, we expect Spirit shares to trade between approximately $23.1 and $25.58 , at least a 36% premium to Spirit’s latest closing share price,” it wrote in the open letter.

Shares of Spirit rose more than 19 percent to $20.28 in pre-market trading.

November 16, 2022
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Tags: frontier airlines, spirit airlines