On January 16, a decision from a US district court prohibited the $3.8 billion acquisition of low-cost carrier Spirit Airlines by JetBlue Airways. The court, situated in the District of Massachusetts, supported the federal government’s stance, asserting that the proposed transaction would breach the Clayton Act—a crucial antitrust law established to safeguard consumers from the negative impacts of monopolies.
Why was the Spirit and JetBlue merger blocked?
US District Judge William Young, based in Boston, articulated the court’s ruling, stating, “The court determines that the proposed merger, in its current form, would significantly diminish competition in violation of the Clayton Act. Consequently, the proposed merger is hereby restrained.” This legal outcome marks a halt to the anticipated acquisition, citing concerns about potential anti-competitive consequences.
“At that time, the Department of Justice asserted that JetBlue’s proposal aimed to eradicate the distinctive competition offered by Spirit, accounting for roughly half of all ultra-low-cost airline seats in the industry. Such an outcome, according to the DoJ, would result in higher fares and diminished options for tens of millions of travelers.”
What happened to the Spirit Airline Stocks after demolishing the merger
Following the ruling, Spirit Airlines experienced a significant decline in its stock value. The company’s shares initially plummeted by over 50%. Still, they later recovered slightly, ultimately closing the day with a 47% decrease at $7.92 per share. In contrast, JetBlue’s stock saw an increase of nearly 5%, concluding the day at $5.13 per share.
This legal decision comes in the wake of the Department of Justice’s legal action to impede the merger in March of the previous year. The move was part of the Biden administration’s efforts to thwart deals deemed anti-competitive, showcasing a commitment to maintaining fair market practices.
What more to know about Spirit Airline
Spirit faces a financial obligation of nearly $500 million. Both Spirit and JetBlue, who initiated their endeavour to become the fifth-largest carrier in the United States in 2022, expressed disagreement with the court’s decision and are currently assessing their next steps. In the event that the proposed merger unravels, Spirit would be required to disburse $70 million to JetBlue and an additional $400 million to its shareholders.
This setback not only poses challenges for Spirit and JetBlue but also carries potential implications for other planned mergers within the airline industry. The anticipated $1.9 billion acquisition of Hawaiian Airlines by Alaska Airlines, for instance, may encounter increased hurdles in the wake of the federal court’s favourable ruling.