JetBlue and Spirit close to takeover deal that could come Thursday – source

July 28 (Reuters) – JetBlue Airways Corp (JBLU.O) is set to strike a deal to buy Spirit Airlines (SAVE.N) which could be announced as early as Thursday, a source familiar with the matter said, after Spirit canceled its $2.7 billion. sale to Frontier Group Holdings (ULCC.O).

The latest developments mark a victory for JetBlue in its months-long battle for the ultra-low-cost carrier, although the potential combination is set to start a fight with antitrust regulators, who have already taken legal action to block the alliance. of JetBlue with American Airlines (AAL.O).

A combination of JetBlue and Spirit would create America’s fifth-largest airline and be the biggest US airline industry merger since Alaska Air Group bought Virgin America Inc for $2.6 billion in 2016.

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JetBlue is offering terms similar to what it previously offered, the source said. In June, JetBlue had offered $33.50 a share for Spirit, or about $3.7 billion, and a severance fee of $400 million.

It will also retain its partnership with American Northeast Alliance (NEA) but is expected to announce minor route divestitures to assuage antitrust concerns, the source said.

The Wall Street Journal first reported the potential deal between JetBlue and Spirit.

JetBlue and Spirit did not respond to requests for comment from Reuters outside of normal business hours.

The source spoke on the condition that they not be identified before the official announcement of the agreement.

Earlier Wednesday, Spirit called off its sale to Frontier after failing to convince shareholders of its merits.

The development, first reported by Reuters, came after Spirit pushed back a shareholder vote on the Frontier deal four times, hoping it could muster enough support. Spirit had previously argued that antitrust regulators were unlikely to clear JetBlue’s $3.7 billion bid.

The result was a setback for Frontier and its chairman Bill Franke, who was instrumental in kicking off talks between the sides last year. Franke’s airline-focused buyout firm, Indigo Partners, is a major Frontier shareholder.

“While we are disappointed that Spirit Airlines shareholders have failed to recognize the value and consumer potential inherent in our proposed combination, Frontier’s board of directors has taken a disciplined approach,” Franke said in a statement. communicated.

JetBlue sees Spirit as an opportunity to expand its national footprint at a time when the US airline industry is grappling with labor and aircraft shortages.

“We are pleased that the merger agreement with Frontier has been terminated and are engaged in ongoing discussions with Spirit toward a consensual agreement as soon as possible,” JetBlue said in a statement.

ANTITRUST RISK

But Spirit could also choose to remain independent.

The airline has expressed concern over JetBlue’s partnership with American. The US Department of Justice filed an antitrust lawsuit against American and JetBlue in September, seeking to end the alliance, saying it would lead to higher fares at busy airports in the northeastern United States.

JetBlue refused to withdraw from the alliance and instead offered sweeteners like higher breakage fees and route divestments.

Frontier shares rose 6.4% to close at $11.27 on Wednesday as investors expressed relief that the company had left what had become a bidding war for Spirit. Shares of Spirit rose 4% to $24.30, while shares of JetBlue rose 3.6% to $8.35.

With the completion of the proposed combination of Spirit and Frontier, Spirit will pay Frontier $25 million for merger-related costs it incurred. Under the terms of the deal, Spirit will owe Frontier an additional $69 million if it ends up reaching a merger deal with JetBlue or any other competitor within the next 12 months.

“Now that Spirit Airlines has terminated the Frontier merger agreement, we hope that Frontier management will put aside their merger distraction and invest the same amount of resources and focus on improving the conditions of their own airline,” said the Frontier Pilots Union, which is a subset of the Air Line Pilots Association (ALPA).

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Reporting by Anirban Sen and Greg Roumeliotis in New York, additional reporting by David Shepardson, Juby Babu in Bengaluru Editing by David Gregorio and Muralikumar Anantharaman

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