Spirit Airlines (NYSE:SAVE) stock is in the spotlight today after the company announced that JetBlue Airways (NASDAQ:JBLU) has agreed to buy Spirit. JetBlue will buy the airline for $3.8 billion, or $33.50 per share. News of this deal is now sparking gains in SAVE stock. Shares are up more than 4% so far.
Both JetBlue and Spirit are discount airlines. If the merger successfully closes, they will become the fifth-largest airline in the States and the country’s “largest discount carrier,” according to CNBC.
Here’s what investors should know moving forward.
SAVE Stock: Frontier Lost the Bidding War
Yesterday, Spirit Airlines announced that it had “rebuffed” a takeover offer from Frontier (NASDAQ:ULCC), another discount airplane operator. Frontier first started trying to buy Spirit back in February, improving its bids a number of times to keep up with JetBlue’s proposals.
Before yesterday, multiple sources had said owners of SAVE stock would not vote to approve Frontier’s takeover offer. Frontier CEO Barry Biffle also believes JetBlue has agreed to pay too much for Spirit Airlines.
As of this writing, ULCC stock is soaring 20% so far today.
Regulatory Worries
Still, many analysts and commentators — and Spirit itself — have expressed worries that JetBlue’s takeover offer may be opposed by U.S. regulators.
Last month, Reuters reported that “Spirit […] has been skeptical of the deal clearing the antitrust hurdle.” This is because of JetBlue’s Northeast “alliance” with American Airlines (NASDAQ:AAL) “which has been sued by the Justice Department.” These doubts likely explain why SAVE stock still trades far below the value of JetBlue’s takeover offer.
Probably seeking to persuade regulators to approve the takeover, JetBlue CEO Robin Hayes said today that the deal would result in what “could be one of the biggest things in the last decade or so in helping the industry in the U.S. remain competitive.” However, Hayes also admitted the combination would trigger “a significant amount of regulatory scrutiny.”
On the date of publication, Larry Ramer did not hold (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.
