Spirit ends sale to Frontier as talks with JetBlue continue

July 27 (Reuters) – Spirit Airlines Inc. (SAVE.N) reversed its $2.7 billion sale to Frontier Group Holdings Inc (ULCC.O) Wednesday after Spirit shareholders balked at backing it, leaving JetBlue Airways Corp (JBLU.O) with an opening to make a deal.

The development, first reported by Reuters on Wednesday, 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.

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“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.

A Frontier-Spirit combination would have reshaped the domestic travel landscape and marked the biggest merger in the U.S. airline industry since Alaska Air Group bought Virgin America Inc for $2.6 billion in 2016.

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.

A sale of Spirit to Frontier or JetBlue would create America’s fifth largest airline. Negotiations between JetBlue and Spirit are progressing well and a deal is possible in the coming weeks, according to people familiar with the matter.

“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.

But Spirit could also choose to remain independent.

ANTITRUST RISK

Spirit expressed concern over JetBlue’s partnership with the Northeast Alliance (NEA) and American Airlines (AAL.O). 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.

So far, JetBlue has refused to pull out of the alliance and instead offered other sweeteners like higher breakage fees and route divestments.

Frontier shares rose 6.4% to close at $11.27 as investors expressed relief that the company 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 Editing by Chizu Nomiyama, Will Dunham, Matthew Lewis and David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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