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Spirit Airlines Shareholders Back Sale to JetBlue

Date: October 19, 2022

By Niraj Chokshi, New York Times

Investors in Spirit Airlines voted on Wednesday to sell the carrier to JetBlue Airways, a combination that could reshape the airline industry in the United States by creating a more viable competitor to the four dominant carriers.

The preliminary vote results represent a victory for JetBlue, which has struggled for years to find a path to rapid expansion and whose surprise bid for Spirit disrupted an earlier offer by Frontier Airlines. The airlines said they expected to close the acquisition, which values Spirit at $3.8 billion, no later than the first half of 2024.

“This is an important step forward on our path to closing a combination that will create the most compelling national low-fare challenger to the dominant U.S. carriers,” Ted Christie, the chief executive of Spirit Airlines, said in a statement.

But the deal still faces substantial hurdles, including federal antitrust scrutiny.

Under President Biden, regulators have strongly opposed corporate consolidation, particularly in industries already dominated by a few businesses. The Justice Department is suing to prevent a partnership between JetBlue and American Airlines in Boston and New York, and it has begun a review of the JetBlue-Spirit deal.

“We look forward to continuing our ongoing discussions with regulators as we work toward completing the transaction and delivering value to team members, guests and stockholders,” Mr. Christie said on Wednesday.

Last month, Senator Elizabeth Warren, Democrat of Massachusetts, asked Transportation Secretary Pete Buttigieg to exercise a rarely used authority to prevent the merger, saying it would reduce competition.

“There is ample evidence that yet another huge airline merger would likely harm American consumers,” she wrote in a letter to Mr. Buttigieg.

“There is ample evidence that yet another huge airline merger would likely harm American consumers,” she wrote in a letter to Mr. Buttigieg.

JetBlue has said that it expects the merger to yield $600 million to $700 million in annual savings and estimated that the combined airline would bring in about $11.9 billion a year in revenue.

Investors appear to have at least some skepticism about the deal. Spirit’s stock opened at $19.84 after the vote on Wednesday, up only slightly from its closing price on Tuesday. That was also just below the share price before the bidding war began in February, suggesting the stock — which closed on Wednesday at $19.80 — is still trading as it was before a Spirit sale was on the table. JetBlue’s purchase price is $33.50 per share.

“There is no guarantee this deal gets done,” said Helane Becker, a managing director and senior research analyst at Cowen & Company, an investment bank. “In fact, some believe the likelihood of approval is less than 50 percent, and, as a result, the stock is trading on a stand-alone basis. The first half of 2024 is a long time from now.”

Two prominent shareholder advisory firms recommended this month that investors approve the merger, noting that shareholders would profit even if regulators prevented the sale. That’s because JetBlue agreed to pay shareholders $2.50 per share upfront on approval of the sale and then 10 cents per share per month starting in January. JetBlue’s offer represents a premium of more than 54 percent on Spirit’s share price before the bidding war began in February.

Spirit and Frontier announced plans that month to merge and create a national budget airline. Weeks later, JetBlue made its rival bid, surprising industry analysts. Spirit and Frontier tried to discredit that offer, arguing that JetBlue would never secure regulatory approval and that it may have put forth its bid only to spoil their plans.

But after months of fighting, numerous delays and JetBlue’s sweetening of its bid, shareholders rejected the Frontier offer, which fell short of JetBlue’s by about $1 billion, in July. A day later, JetBlue and Spirit announced their merger plan.

After the sale, JetBlue would gain a majority market share on more than a dozen routes where neither it nor Spirit previously dominated, according to a New York Times analysis of a year’s worth of flight schedules from Cirium, an aviation data provider.

Most of those routes start or end in Florida, where each airline has a strong presence. From Orlando, the larger JetBlue would operate more than 80 percent of flights to and from San José in Costa Rica and Santo Domingo in the Dominican Republic. The airline would also operate more than 70 percent of flights from Fort Lauderdale to Punta Cana in the Dominican Republic, Cancún in Mexico and La Guardia Airport in New York.

For some routes, mainly in and out of Fort Lauderdale, the larger JetBlue would be the only option for travelers. They include flights to several destinations in the Caribbean and South America.

To appease regulators, JetBlue offered to pre-emptively divest Spirit’s assets in Boston and New York, where American and JetBlue have teamed up. JetBlue has also said it expects to expand at the hub airports of the large carriers, such as Las Vegas, Dallas, Houston, Chicago, Detroit, Atlanta and Miami.

Spirit and JetBlue said they aimed to finish integrating their operations no later than the first half of 2024 and to start flying as one carrier a year later. If regulators prevent the sale, JetBlue has agreed to pay Spirit $70 million and Spirit’s shareholders $400 million, which includes the ongoing payments per share.

Even if regulators let the deal go through, airline mergers are notoriously difficult to pull off, requiring integration of computer systems, aircraft fleets, company cultures and unions with different rules. Consumer advocates and union officials have expressed skepticism about the deal, saying workers and customers often lose out in such combinations.

JetBlue and Spirit both serve a clientele that is younger and more likely to have children than the general population, according to surveys of thousands of travelers of both airlines conducted throughout the first nine months of the year by Morning Consult Brand Intelligence, a research firm.

JetBlue’s customers tend to be wealthier, but that may reflect its strength in the Northeast, the region with the highest household income.

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