Emerging victorious from a monthslong bidding war with Frontier Group Holdings Inc. (ULCC, Financial), JetBlue Airways Corp. (JBLU, Financial) announced on Thursday it is buying Spirit Airlines Inc. (SAVE, Financial) for $3.8 billion.
The deal, which was inked after shareholders of the Miramar, Florida-based company rejected Frontier’s offer on Wednesday, will create the country’s fifth-largest airline.
According to the terms of the agreement, New York-based JetBlue will pay $33.50 per share for the low-cost airline, which includes a prepayment of $2.50 per share in cash upon the approval of Spirit’s shareholders and a ticking fee of 10 cents per month starting next year.
Spirit will also pay a $25 million termination fee to Frontier for merger-related costs.
By combining with Spirit, JetBlue CEO Robin Hayes said the company’s strategic growth will be accelerated due to having access to more jets, pilots and routes. This will allow the company to more effectively compete with the four largest U.S. airlines, American Airlines Group Inc. (AAL, Financial), Delta Air Lines Inc. (DAL, Financial), Southwest Airlines Co. (LUV, Financial) and United Airlines Holdings Inc. (UAL, Financial).
“Spirit and JetBlue will continue to advance our shared goal of disrupting the industry to bring down fares from the Big Four airlines,” he said. “This combination is an exciting opportunity to diversify and expand our network, add jobs and new possibilities for Crewmembers, and expand our platform for profitable growth.”
Spirit President and CEO Ted Christie also expressed his enthusiasm for the takeover.
“Bringing our two airlines together will be a game changer, and we are confident that JetBlue will deliver opportunities for our Guests and Team Members with JetBlue’s unique blend of low fares and award-winning service,” he said. “We especially appreciate the commitment of our Spirit Family throughout this process. Today’s exciting announcement reflects JetBlue’s admiration for Spirit and a shared belief in what the combined airline can bring for our guests.”
The two airlines will continue to operate independently until the merger closes. Hayes will then run the combined company, which will remain headquartered in New York.
While there are concerns about the deal not being approved by regulators on the chance it is found to be anti-competitive, Mac Gardner, the chairman of Spirit’s board, noted the combination “provides meaningful protections for stockholders against an adverse regulatory outcome with a significant cash premium that reflects the continued hard work and dedication of the Spirit Family.”
The transaction is expected to close in the first half of 2024.
Following the announcement, shares of JetBlue popped in premarket trading on Thursday before falling 2.14% to around $8.22. Spirit’s shares gained 4.12% to $25.30, while Frontier’s shares dipped briefly before climbing nearly 19% to $13.38.
Year to date, JetBlue has tumbled over 40% and Frontier is down around 5%. In contrast, Spirit has posted a 15% return.
PRIMECAP Management (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) are invested in both companies as of the first quarter. Additional guru shareholders of JetBlue are Donald Smith & Co., Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Chuck Royce (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio). Spirit is also being held by Hotchkis & Wiley and Lee Ainslie (Trades, Portfolio).
