JetBlue Airways (JBLU) reached a deal to buy Spirit Airlines (SAVE) for $3.8 billion, creating the fifth-largest airline in the U.S. The deal’s announcement on July 28, 2022 came after rival Frontier Group dropped its competing bid to merge with Spirit.
The deal’s price of $33.50 per share was a 38% premium to Spirit’s closing price on July 27, and includes a $2.50 prepayment to investors on approval of the merger, plus a $0.10 per month “ticking fee” beginning in January and lasting until the deal is completed.
The offer was well above Frontier’s bid of approximately $2.8 billion. Frontier and Spirit scrapped their agreement made in February as shareholders were voting on it. The ballot had been delayed four times because of lack of support. Spirit’s board had recommended going with Frontier instead of JetBlue, because of concerns about regulatory approval.
Challenging the 'Big Four'
The Spirit-JetBlue combination will create the fifth-largest airline in the U.S, with projected annual revenues of approximately $11.9 billion, based on 2019 revenues. JetBlue said it also expects the transaction to significantly boost earnings per share in the first full year following closing.
JetBlue CEO Robin Hayes said the combination of the two carriers will “continue our shared goal of disrupting the industry to bring down fares from the Big Four airlines.”
The four largest carriers currently control more than 80% of the market, and JetBlue said that together with Spirit, it would control roughly 9% of market share.
The acquisition will help JetBlue expand its presence in several key cities, including Fort Lauderdale, Orlando, San Juan, and Los Angeles, as well as Big Four airline hubs Las Vegas, Dallas, Houston, Chicago, Detroit, Atlanta, and Miami, according to a release.
Shares of Spirit Airlines rose over 3% on the news on Thursday morning. JetBlue Airways shares fell 1.5%.