JetBlue Airways said Friday it may pull out of a $3.8 billion takeover of Spirit Airlines after a federal judge blocked the deal.
The announcement came just a week after JetBlue and Spirit said they would appeal the decision, which came in an antitrust case brought by the Justice Department.
In a regulatory filing Friday, JetBlue said the deal could be terminated after Sunday if certain conditions were not met. Spirit said in its own filing that it disagreed with JetBlue and believed there was “no basis for terminating” the deal.
A federal judge in Boston blocked the proposed merger on Jan. 16, ruling that Spirit plays an important role in keeping airfares low and that a takeover by JetBlue would hurt travelers. The ruling was a victory for the Justice Department, which under President Biden has sought to curb corporate consolidation across the economy.
The agreement has an expiration date of January 28th, and if certain conditions are met, this date will automatically be extended to July 24th. JetBlue appears to be arguing that Spirit has not fulfilled its part of the agreement, allowing JetBlue to withdraw from the agreement on or after Sunday.
As part of the merger agreement, JetBlue agreed to pay Spirit and its shareholders a total of $470 million if regulators blocked the deal.
Some legal experts said JetBlue's filing on Friday suggested the company could ultimately seek to challenge the $470 million breakup fee. That fee was the deciding factor in Spirit agreeing to JetBlue's offer and backing out of a proposed deal with Frontier Airlines.
“Basically, JetBlue played,” said Dylan Carson, a former antitrust lawyer at the Justice Department who now works at the law firm Manatt, Phelps & Phillips.
Spirit will certainly challenge any attempt by JetBlue to avoid paying the termination fee in court.
Some antitrust lawyers said JetBlue appeared to have concluded that appealing the federal judge's ruling would be costly, time-consuming and could well fail.
“At this point, at least, it appears that this antitrust division is done allowing airline mergers to go unchallenged,” said Dan McCuaig, a former Justice Department antitrust lawyer who is now a partner at the law firm Cohen Milstein.
Spirit's stock price fell about 10 percent on Friday afternoon. The company's stock has lost more than half its value since the deal was blocked as investors worry about the company's prospects as a standalone company. Spirit is not profitable and carries a lot of debt. The airline was also forced to ground some of its jets due to an engine problem.
Shares of JetBlue, which could save billions of dollars if it doesn't appeal and complete the deal, rose about 3 percent Friday afternoon.
Jonnathan Handshoe, airline analyst at CFRA Research, noted that the merger is at risk during a turbulent time for the industry. Even as customers spent more on travel last year, fuel and labor prices have risen, and regulators are scrutinizing Boeing, limiting the plane maker's ability to expand production after part of a 737 crashed during an Alaska Airlines flight Max 9 jets were demolished flight this month.
“In light of today’s filing, we expect JetBlue to focus on its own future,” Mr. Handshoe said.