Following a monthslong courting process, shareholders of Spirit Airlines (NYSE:SAVE) approved its merger with JetBlue Airways (NASDAQ:JBLU). According to the Wall Street Journal, it’s a step toward creating the fifth-largest U.S. airline, and on the surface, a positive for SAVE stock. However, the deal also faces scrutiny from antitrust authorities who have pushed back on corporate mergers. Therefore, JBLU stock may still encounter difficulties.
In February of this year, rival discount airliner Frontier Group (NASDAQ:ULCC) agreed to buy Spirit. At the time, Spirit rebuffed JetBlue, with management stating that the original deal with Frontier carried a greater probability of regulatory approval. It also noted that the deal would be better for stakeholders of SAVE stock in the long run.
However, the shareholders themselves eyeballed JetBlue’s richer offer to the tune of about $1 billion more than Frontier’s. Neither Spirit nor Frontier could convince owners of SAVE stock to consider the Frontier deal. Therefore, the vote on Wednesday largely represented a formality.
In total, the Spirit-JetBlue merger features a valuation of $3.8 billion. It underscores JetBlue’s long-held growth ambitions, which fundamentally represents a positive for JBLU stock. Per the WSJ, the “airlines said Wednesday they expect to conclude the regulatory process and close their deal no later than the first half of 2024.”
Still, political undercurrents suggest that the merger will not go unchallenged.
SAVE Stock Draws Skepticism From Antitrust Crowd
In a sign that the framework will not be smooth sailing for SAVE stock, the New York Times reported that last month, “Senator Elizabeth Warren, Democrat of Massachusetts, asked Transportation Secretary Pete Buttigieg to exercise a rarely used authority to prevent the merger, saying it would reduce competition.”
“There is ample evidence that yet another huge airline merger would likely harm American consumers,” Warren wrote in a letter to Buttigieg.
In a bid to bolster the deal and by deduction JBLU stock, JetBlue “consistently argued the opposite, saying its purchase of Spirit would benefit the flying public,” per the NYT. Of course, JetBlue has every motivation to say this considering its expansion goals. In 2016, JetBlue lost a bidding war for Virgin America to Alaska Air Group (NYSE:ALK).
It’s not at all clear whether JetBlue can win out with the Spirit merger. Per CNBC, the Biden administration “has taken a hard stance against deals they argue will harm consumers.” Presently, the Justice Department is battling JetBlue’s existing partnership with American Airlines (NASDAQ:AAL) in the northeast region of the U.S.
Still, the one positive for both SAVE stock and JBLU stock is that airline mergers may not automatically signal detriment for consumers. In 2014, a PwC report indicated that “the mega-mergers of the last several years have led to better on-time performance, fewer lost bags and fewer and smaller fare increases than declining competition would suggest,” according to NBC News.
Nevertheless, convincing Washington powerbrokers represents an entirely different challenge. Therefore, investors may need to keep a cautious eye on JetBlue’s acquisition hopes of SAVE stock.
On the date of publication, Josh Enomoto 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.
