JetBlue Airways is not backing down in its quest to acquire Spirit Airlines.
In a letter issued May 16, JetBlue CEO Robin Hayes urged Spirit’s shareholders to vote against a competing offer from Frontier Airlines at an upcoming special shareholder meeting scheduled for June 10.
“This will send a message to the Spirit Board that you want it to negotiate with us in good faith,” Hayes wrote.
As it attempts to scuttle the Frontier transaction, New York-based JetBlue is now proposing an all-cash tender offer to purchase outstanding shares of Spirit’s common stock at $30/share. The tender offer represents a roughly 60% premium to the value of the Frontier deal as of May 13, according to JetBlue. The offer is contingent on the two companies successfully reaching a merger agreement.
The $30/share tender offer is 10% lower than JetBlue’s original $33/share offer, which Hayes said was reduced because of the Spirit Board’s “unwillingness to share the same necessary diligence” that it shared with Frontier. JetBlue is “fully prepared” to negotiate a transaction at the original $33/share price if it receives the requested financial information, Hayes added.
Frontier’s cash-and-stock offer, by contrast, equated to just $18.81/share as of the May 13 market close, according to Raymond James analyst Savanthi Syth.
Spirit said in a statement on May 16 that its board will “carefully review” JetBlue’s tender offer to determine what course of action is “in the best interests” of its stockholders. The South Florida-based company said that its stockholders are “urged to take no action” with respect to the tender offer, adding that it plans to advise on the matter “within 10 business days.”
In investor materials shared May 16, Hayes and JetBlue repeatedly referred to Spirit’s board as “conflicted” and alleged that it neglected its fiduciary duty to shareholders by not considering JetBlue’s “superior” offer “in good faith.”
Hayes alleged that close ties between Bill Franke, chairman of Frontier’s parent Indigo Partners and former chairman of Spirit Airlines, and the current members of Spirit’s board—many of whom were previously appointed by Franke―have created a conflict of interest and caused the Spirit board to ignore the “best interests” of its shareholders.
“Their flawed process and refusal to engage with us constructively deprived their shareholders of the most attractive option,” JetBlue said in its presentation.
In rejecting JetBlue’s offer earlier in May, Spirit’s board concluded that the merger’s promised economic benefits were “illusory” in view of its more challenging regulatory prospects, arguing that JetBlue’s Northeast Alliance (NEA) with American Airlines would be a major hurdle to gaining government approval. The Biden administration has sued to block the NEA in federal court with initial arguments in that case expected in September.
But JetBlue said that concerns about the NEA were misplaced and have “no basis in fact or law.” Either the NEA is blocked by the courts—in which case it is irrelevant to the merger’s approval—or it will be upheld by the court, serving as a “testament that the alliance is pro-competitive.”
“In either case, the Northeast Alliance litigation does not impact JetBlue’s ability to acquire Spirit,” Hayes wrote.
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