JetBlue Airways and Spirit Airlines announced Monday that they will not seek to overturn a court ruling that blocked their planned $3.8 billion merger. The ruling is a big win for the Biden administration, which has been trying to limit corporate consolidation.
Backing out of the deal will cost JetBlue. Under the terms of the deal, it had to pay Spirit a breakup fee of $69 million and Spirit shareholders $400 million.
A federal judge in Boston blocked the proposed merger on Jan. 16, siding with the Justice Department in determining that the merger would reduce competition and give airlines more leeway to raise ticket prices. The judge, William G. Young of the US District Court for the District of Massachusetts, said that Spirit plays an important role in the market as a low-cost carrier and that travelers would have fewer options if it were to take over. of JetBlue.
The Justice Department praised the termination of the deal on Monday, calling it “a victory for US travelers who deserve lower prices and better options.”
JetBlue and Spirit appealed Judge Young’s decision and JetBlue filed an appellate brief last week. But the companies appear to have decided they are better off walking away rather than pursuing an appeal that may not succeed.
“We’re proud of the work we’ve done with Spirit to lay out a vision to challenge the status quo, but given the closing hurdles that remain, we’ve decided together that the interests of both airlines are better served by moving forward independently,” JetBlue chief executive Joanna Geraghty, said in a statement on Monday. “We wish the entire Spirit team the best moving forward.”
The decision to end the deal was unexpected. In a securities filing on Jan. 26, JetBlue said it may walk away from the deal. Spirit said in its own filing that same day that it believed there were “no grounds to terminate” the agreement.
As part of their merger agreement, JetBlue agreed to pay Spirit and its shareholders if the deal is blocked.
“JetBlue made some valiant attempts and extended this deal as long as possible, they needed to provide reassurance for their shareholders and employees,” said Brad Haller, a partner at consulting firm West Monroe.
The collapse of the deal could make it difficult for Spirit to recover.
Spirit is heavily indebted and was last profitable before the Covid-19 pandemic. Investors saw the acquisition of JetBlue as a lifeline. Spirit’s chief executive, Ted Christie, said in a statement Monday that “due to regulatory uncertainty, we are always considering the possibility of continuing to operate as a stand-alone business” and considering of ways to boost profits.
It is unclear whether other companies will seek to acquire Spirit. Buying the airline would quickly allow other carriers to become bigger at a time when airport gates and take off and landing slots are in short supply at many popular US destinations.
But regulators are likely to challenge a deal they believe would result in higher fares, suggesting another low-cost airline that does not directly compete with Spirit on many routes could strike a deal. One possible candidate is Frontier Airlines, a low-cost carrier, which proposed buying Spirit before JetBlue outbid it by about $1 billion.
Spirit’s stock price has lost more than half its value since the decision to block the merger and was down about 15 percent on Monday morning. JetBlue stock rose about 2 percent on Monday as investors believed the company could save money by not having to close this deal.
The merger of the airlines will give the combined company a larger share of the market, which is dominated by four carriers – American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.
JetBlue isn’t the only airline that has sought to challenge those four companies. Alaska Airlines, which has a large presence up and down the West Coast, in December announced it would try to acquire Hawaiian Airlines for $1.9 billion. That deal, too, is likely to attract scrutiny by federal antitrust regulators.
