What happened
JetBlue Airways (JBLU 4.10%) isn't ready to give up on its pursuit of Spirit Airlines (SAVE -1.95%), and the doggedness gave a lift to Spirit shares. The low-cost airline's stock gained more than 10% for the week through Friday trading as investors hope for a bidding war between JetBlue and Frontier Group Holdings (ULCC 1.59%).
So what
JetBlue just won't take no for an answer. In February, Spirit and Frontier agreed to merge in a deal valued at the time at about $6.4 billion, only to have JetBlue step in with its own $7.2 billion takeover offer in April. In early May, Spirit rejected the JetBlue bid, saying that the proposal is unlikely to win regulatory approval.
Image source: Spirit Airlines.
On Monday, JetBlue went hostile in its pursuit. JetBlue sent a letter to Spirit shareholders urging them to vote against the proposed Frontier offer, and offering $30 per share in cash for Spirit. That offer is down from JetBlue's original $33 per-share offer, but still well above the cash-and-stock Frontier offer that is currently valued at about $19.76 per share.
Spirit remains committed to the Frontier offer, reiterating its concern that JetBlue faces an uphill climb winning approval for its deal from Washington. But investors seem intrigued: Shares of Spirit jumped nearly 20% in the days following JetBlue's hostile tender, only to give back some of those gains as the week went on.
Now what
It is worth noting that even with Spirit's gains, it is still trading at a discount to the Frontier offer and nearly 40% below JetBlue's $30 per-share offer price. That implies the market is in no way pricing in a JetBlue victory. Although the outcome is far from certain, JetBlue still appears to be the underdog in this fight.
Spirit's board is likely correct in its assessment that the JetBlue offer carries more regulatory risk than Frontier's. JetBlue and Spirit are both largely focused on the East Coast and Caribbean, so there is more overlap in their operations. Frontier, which is based in Denver, can make a more credible case that its merger would create a nationwide discount competitor. JetBlue also has a partnership with American Airlines Group that arguably eats into its case that it would be a robust competitor to American after acquiring Spirit.
But with Frontier's offer tied to its stock price, and the stock price steadily falling, the gap between the Frontier offer and the JetBlue offer continues to grow. The less Spirit holders are set to receive if they back the Frontier deal, the more enticing JetBlue's bid might look.
This merger saga is likely to have more twists up ahead.
