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JPMorgan Sees 'Growing Probability' Of A Spirit-JetBlue Deal

Published on Jun 13 2022 1:55 PM in General Industry tagged: JPMorgan / JetBlue Airways / JetBlue / Frontier Airlines / Frontier Group Holdings / Frontier Group Holdings Inc / Spirits Airlines

JPMorgan Sees 'Growing Probability' Of A Spirit-JetBlue Deal

Spirit Airlines Inc's SAVE.N acquisition by JetBlue Airways Corp JBLU.O has become a "growing probability", according to analysts at JPMorgan.

Details

Florida-based ultra-low-cost carrier Spirit is the subject of a bidding war between JetBlue and Frontier Group Holdings Inc ULCC.O.

Both bidders view Spirit as an opportunity to expand their domestic footprints at a time when the US airline industry is dogged by persistent labor and aircraft shortages. Either of the two deals would create the fifth-largest US airline.

"...a merger outcome between Spirit and JetBlue is a growing probability and may overtake the likelihood of a Frontier deal," the JPMorgan analysts said in a note published on Thursday 9 June.

The comments came days after Spirit postponed a shareholder vote on its merger with Frontier to June 30 from 10 June.

JetBlue has sweetened its offer for Spirit by increasing its reverse break-up fee by $150 million to $350 million, raising the overall value of its proposed deal to $3.4 billion. The New York-based airline has also offered to pay a portion of the fee upfront after Spirit shareholders approve the deal.

Frontier has agreed to pay Spirit a break-up fee of $250 million. However, it declined to raise its bid in response to JetBlue's revised offer.

Shareholder advisory firm Institutional Shareholder Services (ISS) has urged Spirit shareholders to vote against the deal with Frontier as it reckons JetBlue's deal offers them better value. But if Frontier opts to match JetBlue's break-up fee, ISS said the shareholders can back its deal.

Spirit has repeatedly rejected JetBlue's offer, saying it has a low likelihood of winning approval from US regulators.

JetBlue's "Northeast Alliance" (NEA) partnership with American Airlines AAL.O is a sticking point with Spirit.

The Justice Department has sued JetBlue and American to unwind the partnership. Spirit has asked JetBlue to drop the partnership if it wants a deal, but JetBlue has, thus far, declined.

The JPMorgan analysts said JetBlue would be willing to trade away the NEA partnership for a merger with Spirit.

"Mergers are transformational by design," they said.

JetBlue CEO 'Optimistic' Airline Can Acquire Spirit

The above news was followed by news that JetBlue Airways Corp JBLU.O chief executive Robin Hayes said Friday 10 June that he is "optimistic" he can reach a deal to acquire Spirit Airlines Inc SAVE.N.

"We're pleased that there now seems to be a genuine desire from the Spirit board to engage with us," Hayes told Reuters late Friday 10 June in an interview. "We're going to continue to engage with the Spirit board over the next few weeks."

Florida-based ultra-low-cost carrier Spirit is the subject of a bidding war between JetBlue and Frontier Group Holdings Inc ULCC.O. Spirit has repeatedly rejected JetBlue's offer, saying it has a low likelihood of winning approval from US regulators.

Spirit postponed a shareholder vote on its merger with Frontier to 30 June from 10 June. Hayes said that he thinks the majority of Spirit shareholders believe JetBlue's offer is superior and "that's why they had to delay the vote."

JPMorgan said in an analyst report 'Thursday 9 June that a deal by JetBlue to buy Spirit has become a "growing probability."

Both bidders view Spirit as an opportunity to expand their domestic footprints at a time when the U.S. airline industry is dogged by persistent labor and aircraft shortages. Either of the two deals would create the fifth-largest US airline.

JetBlue has sweetened its offer for Spirit by increasing its reverse break-up fee by $150 million to $350 million, raising the overall value of its proposed deal to $3.4 billion. The New York-based airline has offered to pay a portion of the fee upfront after Spirit shareholders approve the deal.

Frontier has agreed to pay Spirit a break-up fee of $250 million but declined to raise its bid of $21.10 a share in cash and stock at Friday 10 June's closing price in response to JetBlue's revised offer.

Hayes said the revised offers illustrate "the benefit of the competitive process that the (Spirit) board should have run in the first place. Things that have happened in the last two weeks could have happened months ago."

JetBlue's "Northeast Alliance" (NEA) partnership with American Airlines AAL.O is a sticking point with Spirit.

The Justice Department sued JetBlue and American to unwind the partnership. Spirit has asked JetBlue to drop the partnership if it wants a deal, but JetBlue declined.

JPMorgan said JetBlue would be willing to trade away the NEA partnership for a Spirit merger.

"Mergers are transformational by design," the note said.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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