JetBlue Airways has launched a hostile takeover of Spirit Airlines after its first offer to buy the airline was turned down.
The airline initially offered Spirit $33 per share, all cash, in early April – a deal totaling $3.6 billion. Spirit turned down the buyout to continue its merger with its competitor Frontier Airlines, which offered to buy Spirit for $2.9 million in February.
JetBlue executives sent a letter to the discount carrier’s shareholders, urging them to reconsider.
“Based on the clear superiority of our offer, we expected the Spirit Board to engage constructively,” wrote Robin Hayes, the CEO of JetBlue, per Axios. “Given its unwillingness to share necessary information or negotiate in good faith, we adjusted our price accordingly, but will work towards a consensual transaction at $33 per share, subject to receiving the information to support it.”
JetBlue is currently offering $30 a share but is open to honoring its original deal if Spirit does not go through with the merger. The airline also said “it would operate Spirit under the JetBlue banner, helping New York’s ‘hometown airline’ grow from its current position as the sixth largest carrier airline in the US,” per Business Insider.
Spirit cited JetBlue’s participation in the North American Alliance (NEA) as part of its justification for turning down the higher offer. The NEA is an agreement between JetBlue and American Airlines to combine their flights in New York City and Boston that could provide customers with more connecting flights and routes from both cities.
“We believe a combination of JetBlue and Spirit has a low probability of receiving antitrust clearance so long as JetBlue’s Northeast Alliance with American Airlines remains in existence,” the Spirit Airlines board of directors said in a statement in early May.
The alliance was sued by the Department of Justice, which argued the agreement did not increase competition and instead violated antitrust laws.
“The civil antitrust complaint alleges that this extensive combination, which they call the ‘Northeast Alliance,’ will not only eliminate important competition in these cities, but will also harm air travelers across the country by significantly diminishing JetBlue’s incentive to compete with American elsewhere, further consolidating an already highly concentrated industry,” the DOJ wrote in its press release.
“In an industry where just four airlines control more than 80% of domestic air travel, American Airlines ‘alliance’ with JetBlue is, in fact, an unprecedented maneuver to further consolidate the industry,” Attorney General Merrick Garland added. “It would result in higher fares, fewer choices, and lower quality service if allowed to continue. The complaint filed today demonstrates the Justice Department’s commitment to ensuring economic opportunity and fairness by protecting consumers and competition.”
Spirit Airlines’ stock surged after the news of JetBlue’s letter broke, climbing 22% on May 16. The airline is expected to vote on the Frontier merger at a shareholder meeting on June 10.