What happened
Shares of Spirit Airlines (SAVE 0.25%) rose 12% in the week through the close of trading on Thursday. The move comes in response to JetBlue Airways increasing its offer to buy Spirit for a total consideration of $33.50 per share in cash. JetBlue believes its offer trumps Frontier Airlines' earlier bid, not least as it implies a 67.6% premium to Frontier's offer of $19.99 per share as of June 17.
While JetBlue's offer may appear to be a "no-brainer" for Spirit shareholders, there are concerns that antitrust regulators may seek to block the deal.
JetBlue is offering $1.50 per share in cash as a prepayment to Spirit stockholders upon voting for the deal to relieve fears over the issue. A further $1.70 per share will be paid to Spirit if the merger agreement is terminated due to antitrust reasons. In total, the reverse breakup fee comes to $350 million in cash terms -- a figure higher than Frontier's breakup fee offer of $250 million.
So what
JetBlue is serious about the deal, and it aims to build scale in the discount airline world. Spirit Airlines' management has promised its decision on the proposal by June 30.
Aside from demonstrating JetBlue's ambition, it's also a sign of confidence in the industry. Demand for air travel has come surging back, and airlines and investors are willing to commit capital to invest in the industry. In fact, the main problem right now is finding ways to meet demand in the face of labor shortages.
Now what
Spirit stockholders will assess the deal while waiting for management's decision on the matter. Moreover, Frontier may decide to increase its offer.
