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JetBlue Airways and Spirit Airlines announced Monday that they do not intend to overturn a court ruling that blocked their planned $3.8 billion merger. The decision is a major victory for the Biden administration, which has sought to limit corporate consolidation.
Withdrawing from the contract would incur costs to JetBlue. Under the terms of the agreement, the company must pay a $69 million dissolution fee to Spirit and $400 million to Spirit shareholders.
On January 16, a federal judge in Boston sided with the Justice Department and blocked the proposed merger, ruling that the merger would reduce competition and give airlines more freedom to raise ticket prices. Judge William G. Young of the U.S. District Court for the District of Massachusetts noted that Spirit plays an important role in the market as a low-cost carrier, and if JetBlue were to be absorbed, travelers would have fewer options.
The Justice Department on Monday welcomed the end of the agreement, calling it “a victory for U.S. travelers who deserve lower prices and better options.”
JetBlue and Spirit are appealing Judge Young’s ruling, with JetBlue filing a brief of appeal as recently as last week. But both companies appear to have concluded that it is better to walk away than pursue a potentially unsuccessful lawsuit.
“We are proud to have worked with Spirit to develop a vision that challenges the status quo, but given the hurdles to closure that remain, we believe that moving forward independently is a priority,” JetBlue’s chief said in a statement. “We jointly decided that this would be in the best interest of both airlines,” the JetBlue chief said. Executive Joanna Geraghty said in a statement on Monday. “We wish the entire Spirit team the best of luck in the future.”
The decision to terminate the transaction was not unexpected. JetBlue said in a Jan. 26 securities filing that it may exit the deal. Spirit said in a filing on the same day that it believes there is “no basis to terminate” the agreement.
As part of the merger agreement, JetBlue agreed to compensate Spirit and its shareholders if the deal was blocked.
“JetBlue made several valiant attempts to extend this agreement as long as possible,” said Brad Haller, a partner at law firm West Monroe. “JetBlue needed to provide certainty for its shareholders and employees. ” he said.
A contract breakdown could be difficult for the Spirit to recover from.
Spirit is heavily indebted and last turned a profit before the coronavirus pandemic. Investors saw the JetBlue acquisition as a lifeline. “Given the regulatory uncertainty, we have always considered the possibility of continuing to operate as a standalone business,” Spirit CEO Ted Christie said in a statement Monday. He said he has been considering ways to expand the business.
It’s unclear whether another company will seek to acquire Spirit. Acquiring the airline would allow other airlines to quickly scale up as airport gates and takeoff and landing slots are in short supply at many popular U.S. destinations.
However, regulators are likely to object to any deal that appears to lead to fare increases, suggesting that only another low-cost carrier that does not directly compete with Spirit on many routes could pull off a deal. There is. One candidate was low-cost airline Frontier Airlines, which had proposed buying Spirit before JetBlue made a bid of about $1 billion.
Spirit’s stock has lost more than half its value since the ruling blocking the merger, and was down about 15% on Monday morning. JetBlue stock rose about 2% on Monday as investors believe the company will save money by not having to complete the deal.
A merger between the two airlines would have given the combined company an even larger share of the market dominated by American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.
JetBlue isn’t the only airline looking to challenge these four. Alaska Airlines, which has a large presence across the West Coast, announced in December that it would seek to acquire Hawaiian Airlines for $1.9 billion. The deal is also likely to come under scrutiny from federal antitrust regulators.
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