Spirit Airlines and JetBlue to merge in $3.8 billion dealExBulletin

A line of Spirit Airlines planes sit on the tarmac at Orlando International Airport on May 20, 2020 in Orlando, Florida.

Chris O’Meara/AP

.

.

Chris O’Meara/AP

A line of Spirit Airlines planes sit on the tarmac at Orlando International Airport on May 20, 2020 in Orlando, Florida.

Chris O’Meara/AP

JetBlue Airways has agreed to buy Spirit Airlines for $3.8 billion and create the nation’s fifth-largest airline if the deal can win approval from antitrust regulators.

Thursday’s deal capped a months-long bidding war and comes a day after Spirit attempted to merge with fellow low-cost carrier Frontier Airlines. collapsed.

Spirit CEO Ted Christie is thrust into the awkward position of defending a sale to JetBlue after he vociferously objected, saying antitrust regulators would never let it happen.

“A lot has been said over the past few months, obviously, always with our stakeholders in mind,” Christie said on CNBC. “We’ve listened to the folks at JetBlue, and they have a lot of great ideas on their plans for this.”

JetBlue CEO Robin Hayes has always argued that a bigger JetBlue would create more competition for the four airlines that control about 80% of the US market American, United, Delta and Southwest.

Shares of Miramar, Fla.-based Spirit rose 3.5% at the opening bell on Thursday to $25.15, still below the price offered by JetBlue. JetBlue shares were essentially flat.

Rates will likely increase after deal

Spirit Airlines consistently ranks among the worst, or near the worst, when airlines are ranked by consumer complaint rate. Yet some consumer advocates fear that the prices will increase if he disappears.

Spirit and similar rivals Frontier and Allegiant charge very low fares that appeal to more budget-conscious leisure travelers, though they add more fees that can drive up the cost of flying.

“Spirit will disappear, and with it, its low-cost structure,” said William McGee of the anti-merger American Economic Liberties Project. “Once Spirit is absorbed (into JetBlue), there’s no doubt fares will go up.”

Others, however, say Frontier will grow, it has a large number of planes on order and will fill any void left by Spirit in the cheaper segment of the airline market.

If approved, the deal is expected to close in the first half of 2024

JetBlue and Spirit will continue to operate independently until the deal is approved by regulators and Spirit shareholders, with their separate loyalty programs and customer accounts.

The companies said they expect to complete the regulatory process and close the transaction no later than the first half of 2024. If that happens, the combined airline would be based in New York, JetBlue’s hometown, and led by Hayes. It would have a fleet of 458 aircraft.

JetBlue said Thursday it will pay $33.50 per share in cash for Spirit, including a $2.50 per share cash prepayment payable once Spirit shareholders approve the transaction. There is also a listing fee of 10 cents per share each month from January 2023 through closing to compensate Spirit shareholders for any delays in obtaining regulatory approval.

If the deal does not close for antitrust reasons, JetBlue will pay Spirit a reverse termination fee of $70 million and pay Spirit shareholders $400 million, less any amounts paid to shareholders prior to termination.

Spirit and Frontier announced plans to merge in February, and Spirit’s board stuck to the deal even after JetBlue made a higher price offer in April. However, Spirit’s board was never able to convince the airline’s shareholders to agree. A vote on the merger was postponed four times, then cut short on Wednesday when Spirit and Frontier announced they were terminate their agreementwhich made a Spirit-JetBlue coupling inevitable.

JetBlue expects annual savings of $600 million to $700 million once the transaction is complete. The combined company’s annual revenue is expected to be approximately $11.9 billion, based on 2019 revenue.