JetBlue Launches Tender Offer for Spirit, Urges Shareholders to Vote Against Frontier Deal

JetBlue is offering $30 a share in cash in its tender offer, but would be open to paying its initial offer price of $33 a share if Spirit comes to the negotiating table and provides data that JetBlue has requested, the company said. JetBlue said the tender price reflected what JetBlue called Spirit’s unwillingness to share necessary information.

“If the Spirit shareholders vote against the transaction with Frontier and compel the Spirit Board to negotiate with us in good faith, we will work towards a consensual transaction at $33 per share, subject to receiving the information to support it,” JetBlue Chief Executive

Robin Hayes

wrote in an open letter to Spirit shareholders Monday.

Spirit said Monday that it would review JetBlue’s tender offer, but urged its investors not to take any action at this time. Spirit said it would advise its shareholders of the board’s formal position within 10 business days.

Representatives for Frontier didn’t respond to requests for comment.

Spirit shares rose 13.5% Monday to $19.27. JetBlue shares declined 6.1%, and Frontier shares increased 5.9%.

The tender offer, earlier reported by The Wall Street Journal, commenced Monday, May 16, and is slated to remain open until June 30. JetBlue has started meeting with some of Spirit’s shareholders, according to a person familiar with the matter.

For a tender offer to succeed, a large portion of shareholders must agree to tender their shares. But in practice, it rarely gets to that point: If an offer appears to resonate with shareholders, reluctant boards tend to capitulate and negotiate a deal.

Spirit has been the subject of a tug of war between two rival carriers that both consider the Florida-based airline as key to their ability to grow and challenge the big airlines that dominate the industry in the U.S. Either transaction, if approved, would create the fifth-largest U.S. airline.

Both companies have accused one another of acting in bad faith.

Spirit Chief Executive

Ted Christie

has questioned whether JetBlue actually intends to buy Spirit, saying that it “stretches any sort of common sense” to believe antitrust regulators would sign off on that merger while JetBlue faces regulatory scrutiny over a separate partnership with

American Airlines Group Inc.

“I have wondered whether blocking our deal with Frontier is, in fact, their goal,” Mr. Christie said during an earnings conference call earlier this month.

JetBlue said Monday that Spirit’s regulatory concerns are a “smokescreen,” and that Spirit has played down the risks of its Frontier deal while hyping concerns about the JetBlue merger. Mr. Hayes said Monday that Spirit never seriously considered JetBlue’s bid, despite being what he described as a more certain and more valuable transaction, and he said that Spirit has refused to engage with JetBlue.

“The Spirit Board failed to provide us the necessary diligence information they had provided Frontier and then summarily rejected our proposal, which addressed their regulatory concerns, without asking us even a single question about it,” JetBlue’s Mr. Hayes wrote in the Monday letter to Spirit investors.

Mr. Hayes cited what he called a long history and relationships between several Spirit board members and Frontier’s chairman as factors that he said influenced Spirit to reject what Mr. Hayes deemed a superior offer from JetBlue.

William Franke,

Frontier’s chairman, once served in the same role at Spirit and served with some of Spirit’s current board members, including Mac Gardner, Spirit’s current chairman.

Mr. Franke left Spirit in 2013 when the company declined to invest in Frontier alongside his investment firm. Later that year, his firm bought Denver-based Frontier and began transforming it to an ultra-low-cost model similar to Spirit.

Spirit agreed in February to be acquired by Frontier in a cash-and-stock transaction originally valued at $2.9 billion. Both are part of a niche of fast-growing airlines that cater to budget-conscious travelers, with low base fares and fees for everything else, from bottled water to carry-on bags. The two companies had been discussing a deal for months.

JetBlue later swooped in with a higher offer, arguing that a tie-up between JetBlue and Spirit would create an even more powerful competitor.

Spirit spurned that bid earlier this month and said it would stick with Frontier. Spirit’s board said it believed there was too much risk that regulators would bar a combination with JetBlue, even after JetBlue pledged to shed assets to win regulatory approval and to pay a $200 million breakup fee if it was unable to complete the proposed acquisition for antitrust reasons.

Spirit has said its review of JetBlue’s offer was rigorous. Spirit raised concerns that JetBlue’s plans would eliminate a low-fare competitor and result in higher prices for consumers—something that it said could draw regulators’ objection.

JetBlue’s alliance with American in New York and Boston was of particular concern, Spirit said earlier this month. The Justice Department has challenged that partnership and is suing to block it. Spirit asked JetBlue to agree to abandon that American partnership if needed to gain regulatory approval for a Spirit acquisition.

In its revised proposal in late April, JetBlue offered to divest itself of all of Spirit’s assets in New York and Boston to avoid increasing its presence in markets where the Justice Department has flagged concerns about the partnership with American, but stopped short of saying it was willing to exit that deal altogether.

Mr. Hayes reiterated Monday that he doesn’t believe that JetBlue’s partnership with American, dubbed the Northeast Alliance, is a regulatory obstacle. He said that JetBlue has offered to pay Spirit shareholders a fee if the merger fails due to antitrust issues, while Frontier hasn’t.

Mr. Christie, Spirit’s CEO, said earlier this month that Spirit had talked “constructively” with JetBlue and provided a “well-populated virtual data room.” But the board decided the regulatory hurdle was so high that it couldn’t evaluate whether JetBlue’s offer was economically superior.

—Dave Sebastian and Cara Lombardo contributed to this article.

Write to Alison Sider at [email protected]