A battle to dominate budget air travel has erupted as JetBlue Airways makes a surprise bid to purchase Spirit Airlines. JetBlue’s $3.6 billion offer comes in the wake of rival Frontier Airline’s announced intentions to acquire Spirit Airlines for $2.9 billion in February. JetBlue appears eager to derail the union and edge out smaller rival Frontier to become the fifth largest U.S. airline, trailing only American, Southwest, Delta, and United.
In today’s still-hot M&A market, fierce competition has fueled rival acquisition bids across industries. To help guard against this, Frontier’s bid to acquire Spirit indeed included a “no shop” clause prohibiting Spirit from seeking any alternative proposals to buy the company. These clauses have become increasingly common: while the clauses appear in 73% of deals over the past decade, they now appear in 95% of deals over the past 12 months, according to Matterhorn’s M&A database. The provisions began becoming less common in 2018 but the trend accelerated during the M&A boom starting in 2020.
No Shop Clause Frequency – 2012 – 2022
No Shop Clause Frequency – Past 12 months
But while the prohibition against soliciting bids applied to Spirit under the terms of its merger agreement with Frontier, JetBlue was still able to approach Spirit independently. Spirit described JetBlue’s offer as “unsolicited.”
Even while no shop provisions are becoming more prevalent, “go shop” provisions are as well. They serve as an exception to the very common non-solicitation provisions by providing a window during which the target company may “shop around” for other suitors. These provisions can be crucial for public company boards in order to enable them to fulfill their fiduciary duty to maximize benefit to shareholders by seeking other buyers – even if only for a short period of time.
But not only are go shop provisions becoming more common, their duration has been extended. While these provisions appeared in just 6.5% of deals over the past decade, they appear in over 15% of deals announced in 2022. And while the ten-year median duration of this period of permitted solicitation has been 35 days, that has jumped to a median of 40 days in deals today.
Go Shop Provision – 2012-2022
Go Shop Provision – 2022
Looming over both deals is the threat of regulatory scrutiny. The Biden Administration has blamed such consolidation for fueling price increases in transportation and vowed antitrust action. JetBlue was sued by the Justice Department just last year for attempting to form an alliance with American Airlines, arguing that the coordination between the two carriers quelled competition. And since Spirit’s union with either JetBlue or Frontier would create the fifth largest airline, either merger is vulnerable to further antitrust action.
