JetBlue has launched a hostile takeover bid for Spirit Airlines, just a few weeks after the company's last two offers for the budget airline were rejected. JetBlue has offered Spirit investors $30 for each share they own, urging shareholders to vote against the existing Spirit-Frontier deal. Al Root, Senior Writer, Barron's, joined Cheddar's Opening Bell to discuss.


Opening Bell

JetBlue Launches Hostile Takeover Bid For Spirit

let's go ahead and bring in Al Root senior writer at Barons. Al can you break down exactly what this hostile takeover could look like? Um, well, you know, you know what, you broke it down pretty well. Right? So they haven't been for 30 bucks. So there's a vote on June 10 For the existing merger. Right? So spirit and frontier have agreed to merge. That's a stock deal or stock and cash deal. So the two share prices are linked. And then JetBlue in April came over the top said, we'd like to buy it, got rejected, said we'll buy it for 33, got rejected. And now they're trying to take their $30 deal directly to shareholders. Um, You know the way the stock is trading, it really isn't trading like JetBlue is gonna win the reason that a spirit rejected was unacceptable level of closing risk. They feel like there's antitrust risk in the deal. Um, there might be some merit to that. But you know, for the next 24 days, it will be high drama at the three boardrooms. Yes. So what's the likelihood that this deal actually gets approved by regulators at this point? So if this is a merger at the low end of the airline industry, Right? So these are low cost carriers, I like um, Frontiers ticker, you lCC ultra low cost carriers, they're actually quite small, right? If you look at the combined market caps, it's probably a quarter of Delta or United or something like that. Um, So it doesn't really seem to be a market concentration issue, but the general feeling is that the regulators will look at this as the, just in terms of the low cost space. Uh, and then it sort of represents, you know, or big between two of, you know, the three major low cost carriers. It would create like the fifth largest airline after the Delta's and United's of the world in America. So I can see it both ways. I can see regulators saying, hey, listen, this is a small airline, we can let it go through, but it doesn't appear that they are, uh, you know, airline mergers are typically, you know, frankly good opportunities to score political points. So it would definitely see a lot of scrutiny. If I was a betting man, I would think that JetBlue could get the deal through. But Spirit, yes. Spirit does raise a good point that there is risk. Yeah. And I think also given the aviation space in this environment, we've seen just how hard it's been hit by the pandemic and kind of the challenges it's had. It's had to hurdle during this time. Um, noting that JetBlue and Spirit have very different business bottles. You mentioned kind of the variations in size for these companies. Do you think a JetBlue Spirit merger would even make sense when you think of a jet blue is kind of, I want to say one of the mainstream or like the larger carriers versus a Spirit that is on the ultra low cost side of things. More of the budget conscious. Yeah. Um, you know, it's an interesting question, I I think that, uh, so, you know, companies won't say this, so this is this is al's opinion, but you know, having more concentration, gives you more control over roads more control over pricing. So regardless of the slight difference in business models, market share on your routes leads to better profits. Makes sense. Now, they would, of course they have benefits consumers. That's very important for antitrust purposes. But this is my opinion. It makes sense from that perspective, to have more control over low cost routes. Um, they're all Airbus companies, right? Jet Blue flies Ember airs in a 3 21 Spirit and Frontier both fly a 3 21. So there's some natural synergies there. So, um, you know, it, whether JetBlue wants to sort of, you know, operate it as their ultra ultra, you know, no frills airline versus what JetBlue has been doing with sort of their business and, and more leg room and I can't remember what it's called, frankly, but Jeff Blue Diamond or something to that effect. You know, they've been sort of going up market, so maybe they have a bifurcated strategy or maybe they'll just, you know, subsume spirit into their existing strategy. Either way, it can make sense based on plain type based on just that market share argument, it's not a bad idea. Yeah. And typically what we see from regulators when a deal like this doesn't go through is that it impacts competition and it doesn't allow the consumers access to fairer prices across the board. If this deal does go through, what do you think the larger impact is on competition? And how does that trickle down to the consumer? Uh, so cynically. Um, so here, let me give you both sides so healthy, you know, a more stable industry and a healthy airline, um, you know, has the ability to, you know, offer more service, more frequent service, more classes of service for consumers. And it's a panacea. Ah, less airlines typically does mean higher prices on routes that they serve. I think that is, there is a reasonable statement. Airline fares though are so difficult to track because, you know, fuel is 25% it's all over the place. But the idea that it means less competition is, is valid. Now. If you look back at the old era, when, you know, United and US Airways, american and America West, all of these guys were emerging. Um, you know, it was really out of desperation, right? Most of the airlines were bankrupt and they sort of reformulated the industry and they're more profitable. So that, that, that's, that's not a terrible thing. That's a good thing. And it's, it's arguably a good thing for consumers and other stakeholders like employees. So there's no easy answer. It's not a huge merger, right? So if they were to raise prices a lot, you know, Deltas United, they dwarf the others in size. They can move in and compete. You know, bottom line is, they're fairly small. So aside from the risk of side, you know, I wouldn't expect a major impact on prices. Maybe you can fly out of JFK or something like that. But I think the overall impact on the industry is relatively small. And if this deal does go through, do you think it kind of breaks down the door for more consolidation in the airline industry? No, I think it's a good question. I think every deal, you know, it's funny. I can't remember the last deal we had. Um, but I think every deal that gets done sort of shuts the door. I think that people like even the fact that, that the jet blue and american alliance was challenged by regulators. Um, you know, that's sort of a sign that they generally don't like anymore airline consolidation. So, you know, the further and more consolidated US industry gets, you know, there's basically four large ones and three small ones. You know, maybe that's four and two if this deal goes through, you know, well, it's spirit and frontier plan to merge. So four goes to two, you know, the less number, maybe six is the magic number, maybe five, but every deal that gets done probably narrows that door just a little bit, so interesting and good to have your insight. That's all routes, Senior writer at Barron's. Thanks so much.