The merger partner of Spirit Airlines (SAVE +0.00%) is casting doubt on whether their deal will close, a development that would raise questions about Spirit's ability to continue to operate. Investors are heading for the emergency exits as a result, with shares down 10.4% as of 3:30 p.m. ET on Friday.
Does JetBlue really want to close this deal?
It has been a turbulent few weeks for Spirit Airlines. The company's planned merger with JetBlue Airways (JBLU +3.83%) was thrown into doubt after a federal judge sided with antitrust regulators seeking to block the deal. The airlines vowed to fight on, saying they would appeal the decision.
But the outcome of that appeal is very much in doubt. On Friday, JetBlue disclosed in a regulatory filing that it has informed Spirit that "certain closing conditions" required to complete the takeover "may not be satisfied" before the deadline the two sides agreed to when the deal was signed.
As a result, JetBlue said the agreement "may be terminable on and after" Jan. 28. JetBlue said it would continue to abide by its obligations unless the deal is terminated.
Spirit countered with its own filing, saying that it believes there is no basis for terminating the merger agreement. Management said it will continue to abide by the agreement, "and it expects JetBlue to do the same."
OTC: SAVE
Key Data Points
Is Spirit stock a buy ahead of the merger-appeal decision?
JetBlue's strategy might not be popular with Spirit or its shareholders, but it makes sense for the company. The airline market has evolved since the merger agreement was signed, and if JetBlue were to close today at the original terms, it would be massively overpaying for Spirit.
With that in mind, JetBlue's best course of action could be to do what is necessary to avoid an eventual Spirit lawsuit, but not any more than that.
Spirit has a lot of debt due over the next 18 months, leading to questions about whether it can remain out of bankruptcy should the deal fall through. A lot of Spirit's shareholder base right now is made up of investors hoping for a quick payday if the judge's decision is reversed and the merger is allowed to close, which is likely to lead to volatility in the stock and an oversize reaction to headlines that suggest potential trouble.
For long-term investors, the best move is to watch this play out from the sidelines. Spirit's chances of merging with JetBlue appear slim, and there is too much uncertainty about what will happen to the company if it has to go it alone.
