Shares of Spirit Airlines (NYSE:SAVE) stock are taking a tumble after the discount airliner announced that its $3.8 billion merger with JetBlue (NYSE:JBLU) had been called off. This morning, the two companies entered into a termination agreement that voided the merger agreement that they signed in July of 2022.
“We are disappointed we cannot move forward with a deal that would save hundreds of millions for consumers and create a real challenger to the dominant ‘Big 4’ U.S. airlines,” said Spirit CEO and president Ted Christie. “However, we remain confident in our future as a successful independent airline.”
As a result of the termination, JetBlue is on the hook to pay $69 million in cash to Spirit by March 5.
SAVE Stock: Merger Between Spirit and JetBlue Called Off
Spirit noted that its focus is now on profitability. The company also added that it had retained Perella Weinberg & Partners and Davis Polk & Wardwell to help address its debt. Furthermore, the termination wasn’t a complete loss for Spirit, as its shareholders had received roughly $425 million in prepayments while the merger agreement was active.
The merger’s collapse began after U.S. District Court Judge William Young ruled to block it, citing competitive risks and negative effects for Spirit’s price-conscious customers. Following the decision, the two airlines filed an appeal.
Later on, JetBlue announced that it might not be able to satisfy certain conditions of the merger by the outside date of the agreement, adding that it could terminate the merger on or after Jan. 28.
According to Cowen analyst Helane Becker, the termination could cause Spirit to file for bankruptcy and liquidate its assets.
“We recognize this sounds alarmist and harsh, but the reality is we believe there are limited scenarios that enable Spirit to restructure,” wrote Becker. “We believe Spirit will first look for an alternative buyer, but another airline may get the same pushback [from antitrust regulators.]”
Spirit has seen its GAAP EPS decline in recent quarters while its net losses have widened. The company is expected to report revenue of $1.274 billion for the first quarter, marking a year-over-year fall of 5.65%.
On the date of publication, Eddie Pan 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.
