JetBlue and Spirit take their disputes to shareholders

The feud between JetBlue Airways and Spirit Airlines is escalating, with both airlines appealing directly to Spirit shareholders today in a war of words that sounds more like divorce than potential marriage.

Earlier this week, JetBlue launched a $30-per-share hostile takeover of Spirit after the ultra-low-cost airline’s board of directors made it clear they prefer a less lucrative offer from low-cost carrier Frontier Airlines. $21.66 in cash and stock for each discount carrier share. JetBlue added that it was willing to discuss a $33 per share deal if Spirit stopped withholding due diligence information about its business.

This morning, Spirit’s board urged its shareholders to reject JetBlue’s offer, citing regulatory hurdles to a JetBlue-Spirit merger due to JetBlue’s Northeast Alliance (NEA) with American Airlines.

“Spirit believes that JetBlue’s proposals and offer are a cynical attempt to disrupt Spirit’s merger with Frontier, which JetBlue views as a competitive threat,” Spirit said in today’s statement.

JetBlue responded with its own statement. “The Spirit Board, driven by serious conflicts of interest, continues to disregard the best interests of its shareholders by distorting the facts to distract from its flawed process and protect its inferior deal with Frontier.”

The alleged “serious conflicts of interest” refer to Bill Franke, current president of Frontier Airlines and former president of Spirit Airlines. Franke, a newcomer to Forbes List of world billionaires, has built his fortune by investing in low-cost airlines. His private equity firm Indigo Partners has a majority stake in Frontier and stakes in several low-cost airlines around the world, including Europe’s Wizz Air, Mexico’s Volaris and Canada’s Lynx Air.

“Regarding regulatory approval, Spirit would have them ignore the current regulatory climate to think approval of their Frontier deal is assured. That’s just not true,” JetBlue said. “Both deals are subject to regulatory review, and both deals have a similar risk profile.”

JetBlue is right, says Florian Ederer, an associate professor of economics at the Yale School of Management and an antitrust expert. “The Spirit-Frontier deal raises questions about the merger of basically the two largest ultra-low-cost carriers. On the other hand, JetBlue is a somewhat differentiated, higher-quality, low-cost airline that is considering buying another low-cost airline.”

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JetBlue has argued that acquiring Spirit would allow it to compete with the so-called “big four” US carriers (American, Delta, United, Southwest) which together control nearly 80% of the market.

“Frontier offers less value, more risk and no regulatory commitment, despite a similar regulatory profile,” JetBlue’s statement said. “We are confident that as we continue to share the facts directly with Spirit shareholders, they will be even more perplexed than they already are as to why the conflicted Spirit Board has refused to deal with us in good faith. We believe Spirit shareholders will make their views known by voting against Frontier’s offer and offering their shares in our offer.”

“JetBlue’s offer is better for shareholders,” Ederer says, adding that neither deal has a clear path through antitrust regulators.

The government will consider other interested parties. “Consolidation is generally not great news for consumers unless there are huge synergies and cost savings that can then be passed on,” Ederer said.

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