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DALLAS - It's like a game of poker, with both sides upping the ante nearly every day.
After consulting with shareholders, JetBlue (B6) yesterday modified its bid for Spirit (NK) by adding a ticking fee, increasing the reverse breakup fee to US$400m, and increasing the accelerated prepayment to shareholders to US$2.50 per share.
The airline has issued an open letter outlining its "superior" offer and encouraging Spirit shareholders not to be misled by the board of directors.
Both B6 and Frontier (F9) are locked in a bidding war to take over NK in an attempt to become the nation's fifth-largest airline and survive in an environment dominated by the Big Four US Airlines: American Airlines (AA), United Airlines (UA), Delta Air Lines (DL) and Southwest (WN).
Frontier Favored
Spirit's board is in favor of the bid by F9, which has raised its own offer for the airline by matching B6's reverse breakup fee (US$350m), and its accelerated prepayment while upping the offer per share to US$4.13, US$2.00 more than its original offer.
Spirit's CEO Ted Christie told MSNBC that the Spirit Board favored the F9 offer as it did not think the B6 tie-up would be approved by regulators.
The particular issue is B6's Northeast Alliance with American Airlines (AA) which the US Justice Department, along with Attorneys General of six states and the District of Columbia, last year sued to break up, alleging that it eliminated competition.
Northeast Alliance
The Department of Justice has stated, "The Northeast Alliance combines American’s and JetBlue’s operations at four major airports: Boston Logan (BOS), John F. Kennedy (JFK), LaGuardia (LGA), and Newark Liberty (EWR).
The airlines have committed to coordinate “on all aspects” of network planning, including which routes to fly, when to fly them, who will fly them, and what size planes to use for each flight. The two airlines will also share revenues earned at these airports, eliminating their incentives to compete with one another.
The Northeast Alliance will also allow the parties to pool their gates and takeoff and landing authorizations, known as slots.”
Ticking Fee
The new ticking fee mechanism in the most recent JetBlue offer is, according to a company release, "a monthly prepayment to shareholders of US$0.10 per share between January 2023 and the consummation or termination of the transaction.
This represents an estimated aggregate ticking fee of up to US$1.80 per share, of which the first US$1.15 per share in payments will offset the reverse break-up fee or the merger consideration. Any payments in excess of the US$1.15 per share will be incremental to the total purchase price of US$33.50 or the reverse breakup fee."
All told, this action would increase the total amount received by shareholders to up to $34.15 per share "in the event the transaction is consummated, and total downside protection to US$4.30 per share, or approximately US$470m in the aggregate, in the event the transaction is terminated."
JetBlue Comments
“After the Spirit Board’s failure to recognize our decisively superior offer, we’ve discussed our offer directly with Spirit shareholders and are now modifying our proposal in response to shareholders’ expressed interest, to include a monthly payment for shareholders, with the certainty of a significant cash premium at closing,” said Robin Hayes, chief executive officer, JetBlue.
“Spirit shareholders should not be misled by Spirit and Frontier’s rosy projections of a potential future stock price, which are based on highly flawed assumptions that fail to account for the actual market conditions, including the need for pilot pay increases and elevated fuel costs. The entrenched Spirit Board has approved a revised deal that is ultimately better for Frontier and its controlling shareholder than it is for Spirit shareholders.”
Frontier Response
Frontier responded Monday with its own open letter to shareholders saying, "JetBlue is not telling you the truth. A Spirit acquisition by JetBlue would lead to a dead-end—a fact that no amount of money, bluster, or misdirection will change. And the only value Spirit stockholders would be likely to receive from JetBlue’s proposal is the reverse termination fee, because JetBlue’s proposal lacks any realistic likelihood of obtaining regulatory approval.”
“We think we have the most compelling offer for shareholders,” Frontier CEO Barry Biffle said in an interview on Monday. Biffle is planning to meet with Spirit shareholders this week ahead of the vote on Thursday.
A CNBC video that reviews this upgraded offer with the Frontier bid is available to view at this link.
Featured image: Arturo La Roche/Airways
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