New York-based budget carrier JetBlue Airways (NASDAQ: JBLU) has sweetened its terms to acquire Florida-based low-cost carrier Spirit Airlines (NYSE: SAVE), in a bid to lure shareholders who are expected to vote on the merger between Spirit and Frontier Group Holdings (NASDAQ: ULCC) this Friday.
Shares of JetBlue closed up 2.1%, Spirit shares gained 7%, and Frontier shares rose 4.5% on June 6.
JetBlue’s Sweetened Offer
In a letter to Spirit’s Board of Directors, JetBlue has summarized the revised terms of its takeover offer. As per its latest terms, the total consideration has been revved up to $3.4 billion, or $31.50 per share, which includes an upfront cash dividend payment of $164 million.
In the unlikely event of the deal failing due to antitrust issues, JetBlue will now pay a reverse break-up fee of $3.20 per share or $350 million (up from $200 million), which includes a prepayment of $1.50 per share to Spirit shareholders immediately upon voting in favor of JetBlue’s offer.
The revised terms of JetBlue’s offer exceed its earlier bid of $30 per share in cash and Frontier’s offer of $2.9 billion. Frontier has recently revised its original offer to include a $250 million or $2.23 per share reverse termination fee to be paid in the unlikely event of the deal not closing.
JetBlue believes its offer provides Spirit shareholders with “demonstrably superior value, more regulatory protections” and has urged them to disapprove of the Frontier merger and instead vote in favor of the JetBlue offer.
JetBlue CEO, Robin Hayes, stated, “Combining JetBlue and Spirit would create a true national competitor to the dominant legacy carriers, delivering low fares and a great experience for more customers, more opportunities and good paying jobs for crew members, and more value for stockholders.”
Moreover, Hayes believes that both Frontier and JetBlue’s offers face similar regulatory and antitrust risks. However, JetBlue’s offer provides more comfort to shareholders. The revised break-up fee and improved offer “reflect the seriousness of our commitment and underscore our confidence in completing this transaction,” Hayes concluded.
In response to JetBlue’s revised proposal, Spirit has told its shareholders that it will evaluate the offer with advisors in due faith and consider the best interests of Spirit and its stockholders.
JetBlue has often complained that Spirit’s Board has not negotiated its offer in good faith. JetBlue’s latest bid provides a 51% premium to Frontier’s offer; a 52% premium to Spirit’s closing price on June 3; and a 45% premium to Spirit’s unaffected share price (closing price of $21.73 on February 4.)
Implications of the Merger
The stakes are high for both bidders, who are in the race to build the fifth largest airline in the U.S., which will put them in a position to compete with the big four airlines. A combination of either with Spirit will build one of the largest ultra-low-cost carriers in the U.S., providing the best alternative to the high-cost carriers that dominate the market.
Furthermore, merging with Spirit will provide both carriers with the necessary ready-made infrastructure to navigate the ongoing crew shortages and limited plane supply, which have been hampering the growth trajectories of air carriers lately. Although economies have opened up and travel demand is surging, airlines are struggling to cope with the issues at hand.
Wall Street’s Take
Based on five Buys, five Holds, and two Sells, the JBLU stock has a Hold consensus rating. The average JetBlue price target of $14.60 implies 39.5% upside potential to current levels. Meanwhile, its stock has lost 28.8% in the year to date.
TipRanks’ Stock Investors tool shows that investor sentiment is currently Positive on JetBlue Airways, with 1.9% of portfolios tracked by TipRanks increasing their exposure to JBLU stock over the past 30 days.
Spirit’s merger with either of the carriers will surely create an enviable low-cost airline. JetBlue has consistently raised its offer to ensure that shareholders vote in favor of its bid. For now, all eyes are on Friday’s vote on the Frontier merger that will chart the future course for all three carriers.
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