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Spirit ends sale to Frontier as JetBlue talks continue

·3 min read

By Anirban Sen and Greg Roumeliotis

(Reuters) -Spirit Airlines Inc canceled its $2.7 billion sale to Frontier Group Holdings Inc on Wednesday after Spirit shareholders balked at supporting it, leaving JetBlue Airways Corp with an opening to clinch 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 earlier argued that antitrust regulators were unlikely to clear JetBlue's $3.7 billion bid.

The outcome 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 shareholder in Frontier.

"While we are disappointed that Spirit Airlines shareholders failed to recognize the value and consumer potential inherent in our proposed combination, the Frontier board took a disciplined approach," Franke said in a statement.

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

JetBlue sees Spirit as an opportunity to expand its domestic footprint at a time when the U.S. airline industry is dogged by labor and aircraft shortages.

A sale of Spirit to Frontier or JetBlue would create the fifth-largest U.S. airline. Negotiations between JetBlue and Spirit are progressing favorably and a deal is possible in the next few weeks, according to people familiar with the matter.

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

But Spirit also could choose to remain independent.

ANTITRUST RISK

Spirit has expressed concern about JetBlue's Northeast Alliance (NEA) partnership with American Airlines. The U.S. Justice Department filed an antitrust lawsuit against American and JetBlue in September seeking to end the alliance, saying it would lead to higher fares in busy airports in the U.S. Northeast.

JetBlue so far has refused to pull out of the alliance and instead offered other sweeteners like a higher breakup fee and route divestments.

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

With the end of the proposed Spirit-Frontier tie-up, Spirit will pay Frontier $25 million for merger-related costs that it incurred. As per the terms of the deal, Spirit would owe Frontier an additional $69 million if it ends up striking 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 its merger distraction and invest the same amount of resources and focus to improving conditions at their own airline," said the Frontier pilots' union, which is a subset of the Air Line Pilots Association (ALPA).

(Reporting by Anirban Sen and Greg Roumeliotis in New York, additional reporting by David ShepardsonEditing by Chizu Nomiyama, Will Dunham, Matthew Lewis and David Gregorio)