JetBlue’s $3.8bn Spirit deal

October 2022 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

October 2022 Issue

JetBlue Airways Corporation has announced it has reached a deal to acquire Spirit Airlines, Inc., for $3.8bn.

Under the terms of the deal, JetBlue will acquire Spirit for $33.50 per share in cash, including a prepayment of $2.50 per share in cash payable upon Spirit stockholders’ approval of the transaction and a ticking fee of $0.10 per month starting in January 2023 through closing, for an aggregate fully diluted equity value of $3.8bn and an adjusted enterprise value of $7.6bn.

The deal, which is expected to close no later than the first half of 2024, is expected to draw significant regulatory scrutiny. The newly combined company would enjoy a market share of 9 percent, creating the fifth-largest US airline in the process, behind United Airlines, which has a nearly 14 percent share. Delta Air Lines and Southwest Airlines control more than 17 percent each, while American Airlines has more than 18 percent.

To address regulatory scrutiny, JetBlue has said it will pre-emptively divest from certain airports where it and Spirit together have a big presence. A major concern in airline mergers is that they can make one company dominant at certain airports or on particular routes, enabling it to reduce competition and raise fares for some travellers. If regulators prevent the acquisition, JetBlue will pay Spirit $70m and Spirit’s shareholders $400m.

According to a statement announcing the deal, JetBlue expects the deal to result in $600-700m in net annual synergies and accelerate its plan to operate more than 1700 daily flights to more than 125 destinations.

The deal was announced following months of competition between rival airlines JetBlue and Frontier, both of which had been interested in acquiring Spirit. Frontier had been set to buy Spirit before JetBlue came in with an all-cash offer of $3.6bn. The merger between JetBlue and Spirit was announced one day after Frontier Airlines and Spirit announced the collapse of their merger.

“We are excited to deliver this compelling combination that turbocharges our strategic growth, enabling JetBlue to bring our unique blend of low fares and exceptional service to more customers, on more routes,” said Robin Hayes, chief executive of JetBlue. “We look forward to welcoming Spirit’s outstanding team members to JetBlue and together creating a customer-centric, fifth-largest carrier in the United States. Spirit and JetBlue will continue to advance our shared goal of disrupting the industry to bring down fares from the Big Four airlines. This combination is an exciting opportunity to diversify and expand our network, add jobs and new possibilities for crew members, and expand our platform for profitable growth.”

“Combining with Spirit will give JetBlue an even larger platform to deliver on our mission to inspire humanity,” said Peter Boneparth, chair of the board of JetBlue. “With the best crew members and team members in the industry, our board and leadership team look forward to building long-term sustainable value for all our stakeholders as an even stronger, more competitive low-fare airline.”

“We are thrilled to unite with JetBlue through our improved agreement to create the most compelling national low-fare challenger to the dominant US carriers, and we look forward to working with JetBlue to complete the transaction,” said Ted Christie, president and chief executive of Spirit. “Bringing our two airlines together will be a game changer, and we are confident that JetBlue will deliver opportunities for our guests and team members with JetBlue’s unique blend of low fares and award-winning service.”

“We are pleased that the Spirit board of directors’ robust and diligent process has delivered additional value to our stockholders,” said Mac Gardner, chairman of the board at Spirit. “This is a compelling combination that provides meaningful protections for stockholders against an adverse regulatory outcome with a significant cash premium that reflects the continued hard work and dedication of the Spirit family.”

Richard Summerfield