JetBlue Swoops in as Frontier-Spirit Merger Collapses

As predicted in April, JetBlue Airways has jettisoned the Frontier-Spirit merger. The months-long struggle between the rival airlines has convinced Spirit Airlines Inc.’s shareholders to reject Frontier’s $2.9 billion deal announced in February, and instead pursue JetBlue’s $3.6 billion offer.

Although the Frontier-Spirit merger agreement included a no-shop provision designed to help quell Spirit’s other suitors, these provisions do not necessarily prevent other parties from approaching – or re-approaching. Found in 93% of deals over the past 12 months, no shop provisions typically follow the formulaic language used in the Frontier-Spirit agreement that called upon Spirit to cut off acquisition discussions and agree to “not, directly or indirectly: (A) solicit, initiate, knowingly encourage or knowingly facilitate any inquiry, expression of interest, proposal or offer that constitutes or would reasonably be expected to lead to an Acquisition Proposal.” This certainly did not stop JetBlue’s ambitions.

No Shop Clauses have become standard

Spirit had earlier refused JetBlue’s significantly higher offer for two main reasons. First, Frontier’s agreement permitted Spirit’s shareholders to retain stock in the combined entity, and therefore share in future upside. Second, Spirit fears that antitrust regulators would be more likely to stop a union with JetBlue. 

Indeed, the Justice Department previously sued to stop a proposed alliance between JetBlue and American. While the Trump administration had blessed that partnership in January 2021, the Biden Administration changed course. In July 2021, the Biden Administration issued an executive order calling for, “enhancing effective coordination between the Department of Justice and the Department of Transportation to ensure competition in air transportation and the ability of new entrants [airlines] to gain access.”

As airfares rise, the Biden Administration has called for increased competition to aid consumers’ wallets. And by merging JetBlue and Spirit to create the 5th largest airline, Spirit’s shareholders had feared that the merger would face the wrath of this increased antitrust scrutiny. That may very well be the next chapter in the sage to acquire Spirit.