JetBlue Airways (JBLU) has affirmed its commitment to push through on a deal for Spirit Airlines (SAVE). The airline has increased its takeover offer to $33.50 in cash per share, up from the previous offer of $31.50. The Wall Street Journal reports that the airline is also willing to divest some of its assets to secure regulatory approval for the deal.
Spirit Airlines’ Takeover Deals
In February, Frontier Group Holdings (ULCC) reached a deal to acquire Spirit Airlines for $2.9 billion in cash and stock. JetBlue joined the negotiations by tabling an unsolicited offer that valued the budget airline at $33.0 per share, or $3.64 billion in April. According to CNBC, JetBlue’s new $33.50 a share offer represents a 68% premium to Frontier’s stock and cash transaction.
The push for a deal also saw Frontier add a $250 million reverse termination fee to its deal with JetBlue, countering with a $350 million breakup fee. Spirit will have to decide whether to accept JetBlue’s offer or Frontier Group’s offer.
The two airlines are eyeing a deal for the budget airline as they look to strengthen their competitive edge to take on bigger players in the industry. Either agreement with Spirit Airlines will result in the fifth largest airline in the U.S.
Spirit has since confirmed it will give both airlines access to the same due diligence information. Plans are also underway to complete the discussions with both carriers before a shareholder’s meeting on June 30, 2022.
However, Spirit Airlines has shown signs of pushing back against JetBlue’s offer even though it is the superior of the two. According to the budget airline, the deal stands little chance of gaining regulatory approval. On the other hand, JetBlue has said it is ready to shed assets to persuade regulators. Its latest offer significantly increases the divestitures the airline would be willing to carry out to secure approval. However, according to CNBC, it does not include abandoning the Northeast Alliance with American Airlines (AAL).
In addition to increasing divestitures, JetBlue has also been trying to persuade Spirit Airlines investors to shun the Frontier deal. It has already gained the support of Institutional Shareholders Services Inc., which believes its deal provides more compensation even if regulators block it.
Wall Street’s Take
The Street is optimistic about the stock, with a Hold consensus rating, based on five Buys, five Holds, and two Sells. The average JetBlue price forecast of $14.60 implies 70.76% upside potential from current levels.
TipRanks data shows that financial bloggers’ opinions are 85% Bullish on JBLU, compared to a sector average of 68%.
Key Takeaway for Investors
JetBlue is making progress in its bid to become the fifth largest airline. The acquisition of Spirit Airlines should strengthen the airline’s competitive edge, allowing it to take on the big players.