JetBlue to Launch Tender Offer for SpiritQuestion"JetBlue to Launch Tender Offer for Spirit, Urge Shareholders to Vote Against Frontier Deal"Links to an external site.Unit 2 DQ Question: What are Spirit's concerns regarding JetBlue's offer? Why do you think Spirit, Frontier, and...
"JetBlue to Launch Tender Offer for Spirit, Urge Shareholders to Vote Against
Frontier Deal"Links to an external site.
Unit 2 DQ Question:
What are Spirit's concerns regarding JetBlue's offer?
Why do you think Spirit, Frontier, and JetBlue's share prices performed as
they did on Monday?
How and why has JetBlue structured a two-tier offer for Spirit (i.e., $30
per share and $33 per share)?
Describe the events that led to JetBlue's decision to launch a hostile
takeover.
How has JetBlue sought to respond to the concerns voiced by Spirit?
Answer & Explanation
,QUESTION 1.
The major concern regarding JetBlue's offer for Spirit Airlines is antitrust
regulators opposing the deal. Spirit feels that if it were to merge with JetBlue,
that would eliminate a low-fare player, which means higher prices for
consumers, a scenario that could draw objections from regulators.
Of particular concern, he said, were Spirit's concerns about JetBlue's alliance
with American Airlines in New York and Boston. That deal is already facing an
antitrust lawsuit from the Justice Department, and Spirit contends it would
create heightened regulatory hurdles for a deal with JetBlue.
It also questioned whether JetBlue would be able to secure regulatory clearance,
even after offering to sell assets and pay a breakup fee if the deal does not go
through. Spirit said the regulatory bar was so high that it could not properly
consider whether JetBlue's offer was superior to Frontier's.
, QUESTION 2.
Shares of Spirit Airlines surged 22% on Monday after JetBlue launched an
unexpected hostile bid, raising expectations among investors that the company
may be caught in a bidding war between JetBlue and Frontier Airlines. In most
cases, the share price of a company being ferreted out goes up at the possibility
of a bidding war—two acquirers looking into acquiring the same company. As
the acquirers tried to outmaneuver each other with the best possible deal,
investors knew that this kind of competition would only yield them a higher
price for the acquisition of shares in Spirit Airlines.
JetBlue's stock price reacted a little more moderately, with a 2.7% increase
following their announcement of a tender offer. There is always a risk in a
hostile takeover, but with it—likely perceptions of potential long-term benefits
to acquiring Spirit for the investors—other than managing to gain market share
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