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JetBlue launches hostile takeover bid for Spirit Airlines

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LaGuardia International Airport Terminal A for JetBlue and Spirit Airlines in New York.

Leslie Josephs | CNBC

JetBlue Airways launched a hostile takeover bid of Spirit Airlines on Monday and urged shareholders to vote against an existing deal with Frontier Airlines after Spirit rejected JetBlue’s $33 per share, all-cash offer earlier this month.

JetBlue has said acquiring Spirit would give it access to a large fleet of Airbus planes, trained pilots and the ability to better compete against the “Big Four” U.S. airlines that control most of the U.S. market. Spirit rejected the offer to stick with a planned $2.9 billion-cash-and-stock deal to merge with fellow discounter Frontier Airlines. Those two airlines say a merger would allow them to grow and compete more easily.

JetBlue on Monday offered Spirit shareholders $30 a share and urged them to vote against the Frontier deal during a June 10 Spirit shareholder meeting. The company also said its earlier offer of $33 per share is still on the table if Spirit decides to negotiate. Spirit’s shares closed Friday at $16.98.

“If the Spirit shareholders vote against the transaction with Frontier and compel the Spirit Board to negotiate with us in good faith, we will work towards a consensual transaction at $33 per share, subject to receiving the information to support it,” JetBlue said.

Either combination for Spirit would create the country’s fifth-largest carrier.

“We’re also offering to buy their shares, now at a price slightly lower than our original offer because the Spirit Board didn’t follow a fair process or allow us to look ‘under the hood’ like they allowed Frontier to do,” JetBlue CEO Robin Hayes said in a note to employees Monday.

Spirit and Frontier operate a similar model of tighter seating, ultra-low fares and fees for everything else, while JetBlue operates as a more full-service airline featuring free Wi-Fi, seat-back TVs and a business class on several routes.

“Despite SAVE and Frontier having slight differences, the operating models between the two are similar enough to drive efficiencies,” Jefferies aviation analyst Sheila Kahyaoglu said in a note Monday. “JBLU is a more direct competitor to the legacy network carriers, particularly in the premium markets where network carriers have shifted focus.”

She added that Frontier and Spirit would likely expand at the same rate whether they’re combined or separate “with the combination only improving operational efficiency and cost efficiencies with scale.”

Bill Franke, Frontier’s chairman and a longtime budget airline investor, used to be the chairman of Spirit. He left in 2013, and his investment firm Indigo Partners bought Frontier.

JetBlue’s Hayes suggested that previously-laid plans for Spirit and Frontier to combine were hurting Spirit shareholders.

“The Spirit Board’s flat-out rejection of our offer is a troubling sign that they do not have their shareholders’ best interests in mind. So, what is the Spirit Board thinking?” Hayes said in his employee note. “Our guess is that there are a lot of historical ties and personal relationships between the controlling shareholder of Frontier and some of the Spirit Board members who agreed to the Frontier deal.”

JetBlue at a crossroads

Spirit’s rejection of JetBlue’s $3.6 billion cash offer it made last month put the New York-based airline at a crossroads. Hayes said a Spirit acquisition would “supercharge” its growth at a time when demand for new narrow-body planes is high and pilots are in short supply.

Spirit earlier this month said it turned down JetBlue’s offer because it didn’t believe the deal would be approved by regulators. It said part of that rationale was JetBlue’s partnership in the Northeast with American Airlines, which the Justice Department sued to block last year. Spirit’s CEO earlier said during an earnings call earlier this month said that he has “wondered whether blocking our deal with Frontier is in fact their goal.”

Spirit further turned down additional terms from JetBlue that might have eased regulatory concerns, including an offer to divest some of Spirit’s assets in Florida, New York and Boston. JetBlue also offered to pay a $200 million reverse breakup fee if the deal wasn’t approved by regulators on antitrust grounds.

Transportation Secretary Pete Buttigieg declined to comment on the deal Monday and said the DOT would help support any Justice Department analysis of a deal.

“The most important thing is to make sure the American people are served well by a healthy airline sector, and part of a healthy airline sector, part of any healthy sector in our economy, is healthy competition,” he said in interview with CNBC’s “Squawk Box.”

Spirit shares were up more than 12% in afternoon trading Monday, while JetBlue’s were down more than 4%. Frontier shares were up about 6%, while the S&P 500 was only up 0.1%. Representatives for Spirit and Frontier didn’t immediately comment.

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