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JetBlue Airways and Spirit Airlines announced Monday they will not seek to overturn a court ruling that blocked their planned $3.8 billion merger. The decision is a major victory for the Biden administration, which has sought to limit corporate consolidation.
JetBlue would have to pay a heavy price if it backed out of the agreement. Under the terms of the deal, it must pay a $69 million breakup fee to Spirit and $400 million to Spirit shareholders.
A federal judge in Boston blocked the proposed merger on January 16, with the Justice Department determining that the merger would reduce competition and give airlines more leeway to raise ticket prices. Judge of the U.S. District Court for the District of Massachusetts, William G. Young said Spirit has played an important role in the market as a low-cost carrier and that if JetBlue absorbed it, travelers would have fewer choices.
The Justice Department on Monday hailed the closing of the deal, calling it “a victory for American travelers who deserve lower prices and better choices.”
JetBlue and Spirit have appealed Judge Young’s decision and JetBlue recently filed an appellate brief last week. But it appears that the companies have concluded that it would be better to walk away rather than pursue an appeal that might not be successful.
The JetBlue chief said, “We are proud of the work we have done with Spirit to create an approach that challenges the status quo, but given the obstacles we face in closing, we have made the decision together. “Took the view that the interests of both airlines would be better served by moving forward independently.” The executive, Joanna Geraghty, said in a statement on Monday. “We wish the entire Spirit team the best for the future.”
The decision to end the deal was not unexpected. In a securities filing on January 26, JetBlue said it may walk away from the deal. Spirit said in its own filing the same day that it believes there are “no grounds to terminate” the agreement.
As part of its merger agreement, JetBlue had agreed to compensate Spirit and its shareholders if the deal was blocked.
“JetBlue has made many courageous efforts and extended this deal for as long as possible, they had to provide certainty for their shareholders and employees,” said Brad Haller, partner at consulting firm West Monroe.
The collapse of the deal could make it difficult for Spirit to make a comeback.
Spirit is heavily indebted and last made a profit before the Covid-19 pandemic. Investors saw the JetBlue acquisition as a lifeline. Spirit’s chief executive, Ted Christie, said in a statement on Monday that “given the regulatory uncertainty, we have always considered the possibility of continuing to operate as a stand-alone business” and about ways to increase profits. I am thinking.
It is unclear whether any other company would seek to acquire Spirit. Buying the airline would allow other carriers to grow larger at a time when many popular U.S. destinations lack airport gates and take-off and landing slots.
But regulators are likely to challenge the deal, which they believe will result in higher fares, which suggests the only other low-cost airline that does not compete directly with Spirit on many routes , she will be able to make the deal. One possible candidate is Frontier Airlines, a low-cost carrier that proposed buying Spirit before JetBlue made a bid of about $1 billion.
Spirit’s share price has lost more than half its value since the ruling blocking the merger and was down nearly 15 percent on Monday morning. JetBlue stock was up nearly 2 percent on Monday as investors believe the company will save money by not closing the deal.
A merger of the airlines would have given the combined company a larger share of the market, which is dominated by four carriers – American Airlines, Delta Airlines, 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, announced in December that it would attempt to acquire Hawaiian Airlines for $1.9 billion. That deal is also likely to be investigated by federal antitrust regulators.