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With Frontier deal off, Spirit mulls sale to JetBlue | Associated Press

Spirit Airlines and Frontier Airlines agreed Wednesday to drop a merger proposal, clearing the way for JetBlue Airways to acquire Spirit after a months-long bidding war for the budget carrier.

Spirit and Frontier’s decision to cancel the deal was announced while Spirit shareholders were still voting on the proposal. It was clear that despite the support of Spirit’s board, shareholders were ready to abandon the deal.

Spirit CEO Ted Christie said he was disappointed the merger with Frontier was rejected.

“The Spirit board of directors will continue our ongoing discussions with JetBlue as we seek the best path forward for Spirit and our shareholders,” he said in a statement.

Frontier’s offer was worth more than $2.6 billion in cash and stock, far less than JetBlue’s bid of $3.7 billion in cash.

A combination of Spirit with Frontier or JetBlue would create the nation’s fifth-largest airline, though it would still be slightly smaller than American, United, Delta and Southwest.

Attention will now turn to regulatory hurdles for a deal between Spirit and JetBlue. Spirit’s board has for months supported the Frontier deal despite a more expensive offer from JetBlue, arguing that antitrust regulators would never allow JetBlue to buy the nation’s largest low-cost airline and remove it as a competitor to higher-priced carriers. Not surprisingly, JetBlue disagreed with that view.

The Biden administration has probably always scrutinized any deal. The president and his top antitrust official at the Justice Department have expressed distaste for corporate mergers.

Some analysts said the small size of Frontier and Spirit would have earned them a pass from antitrust regulators in previous administrations, but no more. Still, the JetBlue deal looks more problematic, in part because the Justice Department is already suing to end the Northeast regional partnership between JetBlue and American Airlines.

The border and the spirit announced their deal on Feb. 7, saying they would create a massive discount airline that would save consumers $1 billion a year on airfare, creating a powerful new competitor to American, United, Delta and Southwest.

The proposal would combine two very similar airlines — both of which tempt travelers with low fares but charge for some of the things that the larger carriers include in most tickets, from soft drinks to a bag in the hold.

JetBlue is a more mainstream airline that some travelers prefer for its amenities, including free TV and in-flight Internet access. In that sense, Spirit seems like an odd choice.

However, after Spirit started the merger game, JetBlue CEO Robin Hayes decided he couldn’t sit back and watch two budget carriers merge and outsize his airline. On April 5, JetBlue started a bidding war by announcing its own plan to take over Spirit.

JetBlue saw the acquisition of Spirit as the best way to quickly add planes and pilots and break out of the second tier of American airlines.

JetBlue argued that it would also help consumers by cutting fares more effectively than Frontier and Spirit.

New York-based JetBlue waged a furious campaign to persuade Spirit shareholders to reject Frontier’s offer, and the tide seemed to be turning in its favor. Spirit’s board has postponed a vote on the Frontier deal four times, and Frontier CEO Barry Biffle admitted this month that his side was to lose is bad.

Both Frontier and JetBlue have raised their rates in recent weeks, including increased breakup fees for Spirit shareholders.

In the end, Frontier offered $4.13 in cash plus 1.9126 shares for each Spirit share. At Frontier’s closing price on Tuesday, that would be worth about $2.65 billion, and Spirit shareholders would own 48.5% of the combined company.

JetBlue’s bid was more modest at $33.50 a share, plus a fee to cover any delay in regulatory review, which would have raised the value of the offer to $3.7 billion, all in cash.

JetBlue investors seem unimpressed by the airline’s pursuit of Spirit. Since its IPO, JetBlue’s shares have fallen 45% through Tuesday, more than any other U.S. airline except regional carrier Mesa.

Once Spirit’s fate is decided, analysts believe mergers with smaller airlines are possible, but deals involving American, United, Delta or Southwest are unlikely because of antitrust concerns.

JetBlue and Alaska Airlines fought a bidding war for Virgin America in 2016, which Seattle-based Alaska won. Alaska’s strength on the West Coast and JetBlue’s East Coast and Caribbean networks have long made them the subject of merger speculation.

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