How Frontier Notches a Win-Win No Matter the Fate of JetBlue's Spirit Bid
Skift Take
JetBlue’s surprise bid for Spirit could derail Frontier’s deal with the discounter. Losing a tie-up with Spirt may sound like bad news for Frontier, but here's why it will still be a win.
JetBlue Airways surprised the airline industry when it unveiled a $3.6 billion proposal to acquire Spirit Airlines on April 5, potentially upsetting Frontier Airlines planned merger with Spirit. But upset or not, Frontier stands to gain no matter what the outcome of who Spirit ends up with.
First, the numbers: JetBlue is offering $33 per share in cash for Spirit, or a nearly 28 percent premium over Frontier's offer with an implied value of $25.83 per share — $2.13 in cash plus 1.9126 Frontier shares — based on closing prices the day before it made its February 7 offer. Frontier's offer is valued at $2.9 billion.
A JetBlue-Spirit combination would create a fifth-largest U.S. carrier in a transaction that Wall Street analysts said caught them “off guard.” The surprise stems from the fact that a JetBlue-Spirit merger is not as obvious on its face as a Frontier-Spirit combination for a number of reasons, including opposing business models, network concentration, and costs — not to mention potentially raising antitrust red flags in Washington, D.C.
“This bid seems to be an attempt to derail the Frontier-Spirit merger, which would affect market positions and yields for JetBlue, especially on its leisure routes like Florida,” said Saikat Chaudhuri, a director at the University of California, Berkeley’s Haas School of Business and College of Engineering. He added that the proposed deal would be “extremely challenging” to execute
