We always knew this was a possibility. Shortly after Spirit set a shareholder vote on June 10 to approve the Frontier merger, JetBlue has decided it isn’t willing to concede defeat. It has now put forth a hostile bid to try to appeal to the shareholders directly.
JetBlue has really done three things here.
- JetBlue has created the BLUE proxy card which will be sent to all Spirit shareholders to allow them to easily vote against the Frontier deal and align with JetBlue.
- JetBlue is encouraging all shareholders to exercise their so-called “apprasial rights” which would let a third party determine the fair value of the shares. If the Frontier deal is approved and the third party determines the value is higher than what was paid, then this would force higher cash payments.
- JetBlue is putting forth a new offer for $30 per share to the shareholders. It says it will go back up to the original $33 per share amount if the board allows it to do proper due diligence, which is clearly meant to get shareholders to pressure the board.
In other words, JetBlue still wants Spirit, and it wants it bad. With these moves, JetBlue is hoping to work around the board, get shareholders riled up, and if nothing else, increase the cost of the Frontier deal. This is so much fun to watch.
When we last left off, Spirit’s board had just blown up the Death Blue Star. CEO Ted Christie handed out medals to all the brave warriors who fought against the Empire, and all was well in the kingdom of South Florida. Or something like that.
Really, what happened as we discussed here is that Spirit’s board rejected the JetBlue offer because it felt that it either wouldn’t be able to pass DOJ muster or it would take way too long to push it through. You can read more about the rationale here.
JetBlue says that’s a bunch of crap. Or since CEO Robin Hayes is British, maybe he’d prefer bollocks. Either way, with the board not backing JetBlue, the Blue Crew had just one option… take it to the people.
JetBlue already thought it had a rich proposal on the table from a financial perspective, but slumping stock prices have made the offer look even more stupid impressive on paper. JetBlue has created JetBlueOffersMore.com to shout its plans to all the Spirit shareholders in the land.
Some of what JetBlue argues is what you’d expect. It says its offer is not only far more valuable but it’s guaranteed to be at that value since it’s a cash offer unlike Frontier’s mix of cash and stock. I don’t disagree with this, so I won’t dwell on the point. But then it targets Spirit’s biggest objections.
Closing Certainty
It is truly remarkable to see Spirit shoot down the JetBlue offer since it doesn’t think the deal can get done while JetBlue says it has a much better chance of completing than Frontier does. This is enough to make your head spin.
JetBlue says it has “firm conviction” that it can get anti-trust approvals. And here’s why, directly from the horse’s mouth:
✓ Economic analysis shows JetBlue’s presence on nonstop routes decreases legacy fares 3x as much as ultra-low-cost airlines
✓ Less overlap in flights, seats, and ASMs than Frontier in metro areas served by both
It does go back to touting the so-called “JetBlue Effect,” saying that since it can bring legacy airline fares down, the feds should welcome this with open arms. Forget that it may mean Spirit fares actually go up. And yes, JetBlue talks about how there’s less overlap between JetBlue and Spirit than there is between Frontier and Spirit, so the deal will go through. That’s a simplistic view that assumes the feds don’t go off script.
It’s pretty amazing to see how the two sides have completely different opinions on this. I suppose you can always pick the right advisors to tell you what you want to hear, especially since nobody really knows what the feds are thinking. They haven’t been too interested in consistency or rationality up to this point, so the opinions of what they’ll actually do when judging a merger can vary greatly.
Clear Divestiture Commitment
Spirit was not happy that JetBlue wouldn’t add a “hell or high water” provision saying it would do anything necessary to close the deal. It says that the JetBlue Northeast Alliance with American was clearly going to take precedence, and it didn’t think that was helpful for getting this deal done.
JetBlue says that’s silly, and that the NEA isn’t anti-competitive at all… as you’d expect it to say. But considering Spirit is one of the main airlines challenging the NEA, it would be pretty insane if Spirit just took JetBlue’s word for it. JetBlue does repeat that it will divest all of Spirit’s assets in New York and Boston to appease the regulators, but it won’t be going any further than that, at least it won’t make any promises.
Further, JetBlue says that if the NEA loses in court, that will “be decided long before the resolution of any challenge to the Spirit transaction [so] by definition it will no longer be an obstacle.” And then, of course, there’s the $200 million reverse break-up fee that JetBlue included in its last offer. Frontier has none.
That’s all true, but one of Spirit’s counterpoints is that this will take a really long time even if it does go through. JetBlue seems to be agreeing here. Of course, a $200 million fee that gets paid in 2 years isn’t worth $200 million today. It’s all just math and probabilities.
This whole thing is just bananas, since you have JetBlue on one side saying its experts believe something and then Spirit on the other side saying its experts belive the exact opposite. Spirit says it is reviewing JetBlue’s proposal, but I see no reason why it would change its mind. There’s nothing improved in this compared to what Spirit already rejected.
So now it’s all down to the shareholders. June 10 is going to be a very interesting day.