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JetBlue Makes An Unsolicited Offer Of $3.6 Bln For Acquisition Of Spirit

JetBlue Makes An Unsolicited Offer Of $3.6 Bln For Acquisition Of Spirit
JetBlue Airways has made an unsolicited $3.6 billion bid for Spirit Airlines, putting the ultra-low-cost carrier's merger plans with Frontier Group Holdings in jeopardy.
JetBlue CEO Robin Hayes said the transaction will give the New York-based airline a stronger rival to the so-called "legacy" US airlines, which control almost 80% of the passenger market in the United States.
"The number one complaint we get is why don't you fly to more places," Hayes said in a Reuters interview late Tuesday. "What we want to do is create a bigger JetBlue" that can serve more consumers.
JetBlue, the sixth largest passenger airline in the United States, would run Spirit under the JetBlue name, and he believes no divestitures are required.
The decision comes as airlines grapple with rising fuel and labour expenses, as well as a desire to entice more leisure tourists, who have returned at a quicker rate than business travellers since pandemic restrictions were eased.
JetBlue offered $33 per share in cash, which was nearly 33% greater than Frontier's offer of 1.9126 shares and $2.13 in cash, valuing Spirit at $24.93 per share as of Tuesday's closing price.
Spirit's stock finished the day up 22 per cent at $26.92, its highest level since mid-February. The 52-week high for Sprit is $39.19. Spirit shares were trading about $45. just before Covid-19 lockdowns became prevalent.
Spirit would only say that it would consider the offer in a written statement.
According to Hayes, the US Justice Department will conduct a thorough antitrust investigation that might run until 2023.
"We've had unprecedented amounts of consolidation, which the DOJ has approved and now it's about how do we make sure the rest of us can continue to discipline the legacy carriers and create that competition," Hayes said. "We believe ultimately this is the best deal out there that is going to really drive more competition."
The Biden administration, according to Andre Barlow of Doyle, Barlow and Mazard PLLC, "is concerned about price increases as a result of consolidation. Because this one has an impact on consumers, I believe it will be scrutinised closely."
The Justice Department had no comments on the matter.
Last September, the Department of Justice filed an antitrust case against American Airlines and JetBlue over their cooperation, alleging that it will result in higher rates in congested Northeastern U.S. airports. JetBlue is "extremely dedicated" to its partnership with American, according to Hayes, regardless of whether it is successful in acquiring Spirit.
Hayes believes the American Airlines alliance case will be resolved before the Spirit acquisition assessment is completed. 
On a teleconference with analysts and reporters at 8 a.m. ET on Wednesday, he praised the proposal, which he claims will improve operations in critical regions like Florida and access to congested hub airports like Atlanta, Detroit, Miami, and Chicago.
Meanwhile, Frontier claimed it was "surprising" that JetBlue would explore a merger at this time, given that the Department of Justice is now fighting to stop the airline's planned merger with American Airlines. American did not respond right away.
According to JetBlue, if the transaction is completed, net annual synergies of $600 million-$700 million are predicted, and the merged airline is expected to have annual revenue of around $11.9 billion based on 2019 sales.
Frontier said its Spirit offer "is in the best interest of consumers and shareholders and would deliver $1 billion in annual savings for consumers" and argued "significant East Coast overlap between JetBlue and Spirit would reduce competition and limit options for consumers."
Frontier and Spirit proposed a merger in February that would form the fifth-largest airline in the United States.
Spirit's customer service has been criticised in the past, and the airline cancelled 35  percent of its flights on Monday due to weather concerns.
"We don't think customers should have to choose between a low fare and a good experience - they should have both," said Hayes, noting JetBlue's presence in markets typically prompts larger airlines to lower airfares in what he called the "JetBlue Effect." But larger carriers do not always lower fares to match prices from ultra-low cost carriers like Spirit or Frontier.
Some lawmakers have criticised the Spirit-Frontier agreement, and public interest groups warned in March that a merger between the companies "would undermine competition in the heavily consolidated airline industry's only competitive market segment."

Christopher J. Mitchell

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