Spirit Airlines (NYSE:SAVE) stock is trending again today on news that a bidding war for the airline is heating up.
SAVE stock rose 22% yesterday to close at $26.92 after news broke that JetBlue Airways (NASDAQ:JBLU) has entered a bid to acquire Spirit Airlines. This comes in addition to the offer the carrier previously received from Frontier Group (NASDAQ:ULCC), paving the way for a potential bidding war.
What Happened With SAVE Stock
JetBlue Airways has reportedly offered to purchase Spirit Airlines for $3.6 billion, upending Spirit’s previously announced plan to merge with Frontier Group and create a major budget airline.
Spirit Airlines and the Frontier Group, which are both smaller, low-cost airlines, agreed to a merger this February. At that time, Frontier offered to pay about $25 a share for Spirit Airlines.
But now, JetBlue has made an offer that is equal to $33 per Spirit Airlines share, upping the ante for SAVE shareholders and potentially scuttling the planned merger with Frontier Group.
Spirit Airlines said that its board of directors would review the bid from JetBlue, which it called “unsolicited.” Frontier issued a written statement criticizing the JetBlue offer, saying such an acquisition would harm consumers.
Why It Matters
The battle over Spirit Airlines, an ultra-low-cost carrier headquartered in Miramar, Florida, comes at a sensitive time for the airline industry. The sector is just starting to get back on its feet after the pandemic led to a steep drop in demand and grounded flights around the world.
According to the International Air Transport Association, the Covid-19 pandemic cost the global airline industry more than $200 billion in losses. Travel demand is just starting to recover. But as Covid-19 recedes, consumers are being hit with inflation that is running at a 40-year high in the U.S., putting a crimp in spending on leisure and holiday travel.
In announcing their proposed merger in February, Spirit and Frontier said their combination would create a stronger discount carrier that is better able to compete against larger U.S. airlines. Whichever airline Spirit ends up combining with, it will create America’s fifth-largest airline by market share, according to industry figures.
However, both the merger with Frontier Group and acquisition by JetBlue Airways face regulatory scrutiny in Washington.
What’s Next for Spirit
SAVE stock is likely to continue trending higher until the bidding war for it is concluded and a clear winner emerges between Frontier Group and JetBlue. The prospect that shareholders of Spirit Airlines could receive a hefty premium to tender their shares in a takeover battle is attracting a lot of interest from both investors and industry analysts.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
