JetBlue Airways said on Friday that it would back out of a $3.8 billion acquisition of Spirit Airlines after a federal judge blocked the deal.
The announcement got here just every week after JetBlue and Spirit had said they might appeal the choice, which was made in an antitrust case brought by the Justice Department.
In a regulatory filing on Friday, JetBlue said the deal may very well be terminated after Sunday if certain conditions weren’t met. Spirit said in its own filing that it disagreed with JetBlue and believed “there is no such thing as a basis for terminating” the deal.
A federal judge in Boston blocked the proposed merger on Jan. 16, ruling that Spirit plays a vital role in keeping airline fares low and that a takeover by JetBlue would hurt travelers. The ruling was a win for the Justice Department, which under President Biden has sought to limit corporate consolidation across the economy.
The agreement has an expiration date of Jan. 28, and if certain conditions are met that date is robotically prolonged to July 24. JetBlue appears to be arguing that Spirit has not met its end of the cut price, allowing JetBlue to walk away from the deal on or after Sunday.
As a part of the merger agreement, JetBlue agreed to pay Spirit and its shareholders a combined $470 million if regulators blocked the deal.
Some legal experts said JetBlue’s filing on Friday suggested that the corporate might ultimately seek to dispute the $470 million breakup fee. That fee was instrumental in getting Spirit to comply with JetBlue’s offer and walk away from a proposed take care of Frontier Airlines.
“Basically, JetBlue gambled,” said Dylan Carson, a former antitrust lawyer on the Justice Department who’s now on the law firm Manatt, Phelps & Phillips.
Spirit is certain to contest in court any effort by JetBlue to avoid paying the breakup fee.
Some antitrust lawyers said JetBlue appeared to have determined that an appeal of the federal judge’s ruling could be costly and time-consuming and might well fail.
“It definitely looks like at this point not less than this antitrust division is finished letting airline mergers undergo unchallenged,” said Dan McCuaig, a former antitrust trial lawyer on the Justice Department who’s now a partner on the law firm Cohen Milstein.
Spirit’s share price tumbled about 10 percent on Friday afternoon. Its stock has lost greater than half its value for the reason that deal was blocked because investors are nervous about its prospects as a stand-alone business. Spirit shouldn’t be profitable and is carrying a number of debt. The airline has also been forced to ground a few of its jets due to an engine problem.
The share price of JetBlue, which could save billions of dollars by not pursuing an appeal and going through with the deal, was up about 3 percent Friday afternoon.
Jonnathan Handshoe, an airline analyst for CFRA Research, noted that the merger is in jeopardy at a tumultuous time for the industry. Even as customers have spent more on travel over the past yr, the value of fuel and labor have gone up and regulators are scrutinizing Boeing and limiting the plane manufacturer’s ability to expand production after a panel blew off a 737 Max 9 jet during an Alaska Airlines flight this month.
“Given the filing today, we expect JetBlue goes to give attention to its own future,” Mr. Handshoe said.
