What happened
Spirit Airlines (SAVE -3.07%) has once again rebuked a takeover overture from JetBlue Airways (JBLU -18.77%), despite JetBlue's willingness to pay a higher price than Spirit merger partner Frontier Group Holdings (ULCC -5.49%). JetBlue investors appear pleased with the development, sending shares of the airline up 5% on Thursday afternoon.
So what
Spirit and Frontier announced plans to merge back in February, but in April JetBlue stepped in with its own offer to acquire Spirit. The airline industry is facing a shortage of pilots, which limits growth opportunities, and both Frontier and JetBlue are hoping to use mergers and acquisitions to bulk up.
Image source: JetBlue Airways.
Though JetBlue offered a premium price, Spirit has remained faithful to Frontier due to the target's perception that a Frontier/Spirit deal would face an easier time winning regulatory approval than a tie up between Spirit and JetBlue. JetBlue in response has gone directly to Spirit shareholders, urging them to vote against the planned Frontier deal and instead tender their shares to JetBlue.
On Thursday, Spirit reiterated its allegiance to Frontier. The airline said its board determined the JetBlue offer is not in the interest of shareholders because of the "substantial regulatory hurdles" JetBlue would face. JetBlue responded with a statement criticizing the Spirit board, which it says, "continues to ignore the best interests of its shareholders by distorting the facts to distract from their flawed process and protect their inferior deal with Frontier."
Now what
It's hard to say for sure what outcome JetBlue shareholders should be hoping for. In one sense, the Spirit deal is perhaps the clearest avenue for growth on the horizon for JetBlue, and there are no obvious alternative acquisition targets to pursue should Spirit combine with Frontier.
But JetBlue is offering a hefty price -- a premium of more than 50% to Spirit's current share price. And because JetBlue is offering all cash, there is a real risk it is spreading itself thin in an uncertain economic climate where fuel and labor costs are soaring and consumer inflation threatens to eat into demand.
On Thursday, at least, investors appear not to be too bothered by the prospects of Spirit ending up with Frontier. For investors that might mean anemic growth for the next few years. But it is definitely also the safer path forward from here.
