The JetBlue-Spirit Trial Concludes – Merger Arbitrage Mondays

  • December 11, 2023

Key Highlights

  • JetBlue-Spirit trial ends with the judge seeking more divestitures.
  • AbbVie to acquire Cerevel Therapeutics Holdings for $45 per share in cash.
  • Macy’s receives a $21 per share buyout bid valued at $5.8 billion.

Spirit Airlines Inc. (SAVE) $14.55

Market Cap: $1.59 billion

Enterprise Value: $7.26 billion

The Justice Department, along with six U.S. states and the District of Columbia, filed a lawsuit in March contesting the acquisition of Spirit Airlines (SAVE) by JetBlue Airways (JBLU) on grounds of potential harm to competition. While the trial’s commencement faced a delay, it eventually started on October 31, and on December 5, attorneys representing each party presented their concluding arguments.

After the concluding statements were presented, US District Judge William Young suggested that the agreement might proceed if JetBlue consented to relinquish additional assets. According to Reuters, Young said he had “seen cases where a court has decided the divestitures were close but not sufficient and then has proceeded to say this would pass muster if there were this divestiture or that divestiture.”

Recognizing the unique challenges and opportunities in the post-COVID industry, Judge Young also highlighted the likelihood of fare increases if the low-cost carriers were to merge.

During the concluding statements, attorney Ryan Shores emphasized that JetBlue’s acquisition of Spirit is essential for the airline to become a “viable challenger” to the four major carriers that currently dominate the domestic air travel market. In the closing arguments, Shores stressed, “This mandate is even more pressing in today’s context.”

Justice Department attorney Edward Duffy contended that the acquisition would result in a 30% increase in fares and limit choices for budget-conscious travelers. Duffy stated that if JetBlue acquires Spirit, it would effectively reduce the ultra-low-cost carrier’s market share by half, equating to 6 million fewer budget flights annually.

Emphasizing that his questions were not indicative of his eventual ruling, Judge Young asked Justice Department attorney Edward Duffy whether he could potentially work with additional divestitures.

Duffy replied, stating that “there does not seem to be a remedy other than a full-stop injunction that would restore competition.” However, JetBlue attorney Ryan Shores expressed the view that it was within Judge Young’s authority to formulate such an order.

The judge inquired about the timeline for consumers to experience the promised benefits of the JetBlue-Spirit merger, such as increased competition with major airlines. The JetBlue lawyer suggested a potential duration of two to three years, following the market’s post-merger competitive equilibrium.

The trial’s outcome may reshape the landscape of ultra-low-cost airlines, characterized by low base fares and additional fees. If JetBlue acquires Spirit, Frontier would emerge as the largest discount carrier in the U.S., followed by Allegiant Air, Breeze, and Avelo. JetBlue, currently the sixth-largest airline by revenue, would climb to the fifth position, surpassing Alaska Airlines.

Meanwhile, Alaska Airlines (ALK) recently announced its own acquisition, a $1.19 billion agreement to purchase Hawaiian Airlines (HA). The 35% spread on that deal anticipates regulatory challenges.

Under previous administrations, a succession of mergers occurred, consolidating the airline industry to the extent that approximately 80% of the domestic air-travel market is now controlled by four carriers: American (AAL), Delta (DAL), United (UAL), and Southwest (LUV).

The JetBlue-Spirit merger agreement permits an automatic extension of the January 28, 2024, outside date to July 24, providing ample time to secure the remaining approvals. Approval from the Department of Transportation (DOT), Federal Aviation Administration (FAA), and SEC is required. Despite the DOT’s vocal opposition, if the judge determines that the transaction is not anti-competitive, the DOT lacks a valid argument to impede the merger.

The CEOs from competitor airlines taking the stand in the trial and indicating they viewed the merger as positive for their airlines was positive for the JetBlue – Spirit merger. So was the United CEO indicating that certain segments of their planes were essentially functioning like an ultra low-cost carrier (ULCCs) by charging customers for seat selection, carry-on bags, etc. We are likely to hear a decision from Judge Young next year and the risk of the deal getting blocked is reflected in its wide spread.

JetBlue shares experienced a 4% decline, while Spirit shares saw a 12% drop in Tuesday’s trading. The current spread on the deal is 113.06% and expanded from 107.22 the prior week.


Merger Arbitrage activity decreased last week with one new deal announced and four deals completed.

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) which automatically updates itself during market hours.

Merger Arbitrage

Deal Statistics:

Total Number of Deals Closed in 2023176
Total Number of Deals Not Completed in 202313
Total Number of Pending Deals
Cash Deals39
Stock Deals19
Stock & Cash Deals3
Special Conditions4
Total Number of Pending Deals65
Aggregate Deal Consideration$1.02 trillion

New Deals:

  1. The acquisition of Cerevel Therapeutics Holdings (CERE) by AbbVie (ABBV) for $8.7 billion or $45 per share in cash.

Deal Updates:

  1. On December 4, 2023, Eli Lilly and Company (LLY) announced the extension of the expiration of the tender offer to acquire POINT Biopharma Global (PNT) from December 1, 2023, to December 15, 2023.
  2. On December 6, 2023, Kontron AG and Bsquare Corporation (BSQR) jointly announced the successful completion of the previously commenced tender offer.

Approvals:

  1. On December 4, 2023, shareholders of Arco Platform Limited (ARCEapproved the company’s merger with Achieve Holdings at a special meeting of shareholders.
  2. On December 4, 2023, shareholders of Chindata Group Holdings Limited (CDapproved the company’s merger with BCPE Chivalry Bidco Limited at a special meeting of shareholders.
  3. December 4, 2023: Abcam’s (ABCM) acquisition by Danaher Corporation (DHRreceived approval from the High Court of Justice of England and Wales.
  4. On December 5, 2023, Renesas Electronics Corporation received regulatory clearance from the Taiwan Fair Trade Commission for the acquisition of Sequans Communications (SQNS). Renesas also extended the expiration date of its tender offer to acquire Sequans from  December 6, 2023, to December 20, 2023.
  5. On December 5, 2023, Western Asset Mortgage Capital Corporation (WMC) announced that its stockholders voted to approve the proposed merger transaction with AG Mortgage Investment Trust (MITT) at a special meeting of stockholders.
  6. On December 6, 2023, the Federal Communications Commission has granted approval for the transfer of control of DISH Network (DISH) to EchoStar (SATS).
  7. On December 6, 2023, EngageSmart (ESMT) announced that the waiting period under the HSR Act has expired.
  8. On December 6, 2023, Summit Financial Group (SMMF) and Burke & Herbert Financial Services Corp. (BHRBreceived approval for their merger.

Hurdles:

  1. On December 4, 2023, Pioneer (PXD) and ExxonMobil (XOM) each received a request for additional information and documentary materials (a “Second Request”) from the Federal Trade Commission in connection with the FTC’s review of the merger.
  2. December 5, 2023: The month long antitrust trial between JetBlue (JBLU) and Spirit (SAVE) ended. The DOJ argued potential harm to consumers in the merger, while JetBlue asserted that it boosts competition. The judge contemplated conditional approval with extra divestitures, highlighting the broader industry consolidation challenge. The timing of the decision is uncertain, with the acquisition in question, and the judge previously suggested a possible ruling before year-end.
  3. On December 7, 2023, Hess Corporation (HES) and Chevron Corporation (CVX) each received a request for additional information and documentary material (collectively, the “Second Request”) from the FTC.

Shareholders Meeting Schedule:

  1. SomaLogic, Inc. (SLGC) – January 4, 2024

Closed Deals:

  1. The acquisition of Abcam (ABCM) by Danaher Corporation (DHR) was completed on December 6, 2023. It took 100 days for this deal to be completed.
  2. The acquisition of Western Asset Mortgage Capital Corporation (WMC) by AG Mortgage Investment Trust (MITT) was completed on December 6, 2023. It took 119 days for this deal to be completed.
  3. The acquisition of Arco Platform Limited (ARCE) by Achieve Holdings was completed on December 7, 2023. It took 119 days for this deal to be completed.
  4. The acquisition of BSQUARE Corporation (BSQR) by Kontron America, Incorporated was completed on December 7, 2023. It took 57 days for this deal to be completed.

Weekly Spread Changes:

The table below shows weekly spread changes between December 1, 2023, and December 8, 2023.

SymbolQuoteAcquiring
Company
Acquiring
Company Quote
Current
Spread
Last Week
Spread
Spread Change
Weekly
Deal
Type
SAVE14.55JetBlue Airways Corporation (JBLU)5.415113.06%107.22%5.84%All Cash
HES134.5Chevron Corporation (CVX)144.319.98%5.22%4.76%All Stock
SQNS2.82Renesas Electronics Corporation (N/A)7.45%4.84%2.61%All Cash
LBC9.68Washington Federal, Inc. (WAFD)30.585.92%4.01%1.91%All Stock
CWBC14.82Central Valley Community Bancorp (CVCY)19.43.41%1.68%1.73%All Stock
PATI16.07United Petroleum Transports, Inc (N/A)1.18%3.37%-2.19%All Cash
SGEN219Pfizer Inc. (PFE)28.784.57%7.67%-3.10%All Cash
GAN1.55Sega Sammy Creation Inc. (N/A)27.10%31.77%-4.67%All Cash
AMTI0.191Cyclo Therapeutics, Inc. (CYTH)1.2816.61%24.91%-8.30%All Stock
IRBT39.68Amazon (AMZN)147.4130.42%40.63%-10.21%All Cash

Top 10 Merger Arbitrage Deals With The Largest Spreads:

Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as “special situation” deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.

SymbolAnnounced
Date
Acquiring
Company
Closing
Price
Last
Price
Closing
Date
ProfitAnnualized
Profit
SAVE07/28/2022JetBlue Airways Corporation (JBLU)$31.00$14.5506/30/2024113.06%203.28%
MIXT10/10/2023PowerFleet, Inc. (PWFL)$10.09$6.5503/31/202454.10%176.30%
HA12/03/2023Alaska Air Group, Inc. (ALK)$18.00$13.31506/30/202435.19%63.27%
IRBT08/05/2022Amazon (AMZN)$51.75$39.6808/05/202430.42%46.45%
GAN11/07/2023Sega Sammy Creation Inc. (N/A)$1.97$1.5512/31/202427.10%25.56%
ACI10/14/2022The Kroger Co. (KR)$27.25$22.1903/31/202422.80%74.31%
PNM10/21/2020Avangrid, Inc. (AGR)$50.30$42.6412/31/202317.96%312.24%
CPRI08/10/2023Tapestry, Inc. (TPR)$57.00$48.4406/30/202417.67%31.77%
AMTI09/21/2023Cyclo Therapeutics, Inc. (CYTH)$0.22$0.19112/31/202316.61%288.65%
HES10/23/2023Chevron Corporation (CVX)$147.92$134.506/30/20249.98%17.94%

Deals In The Works

Three new potential Merger Arbitrage deals were added to the ‘Deals In The Works‘ section last week.

  1. December 4, 2023: According to Bloomberg, Five9 Inc. (FIVN) has been exploring a potential sale, a little more than two years after the call center software provider scrapped a multibillion-dollar takeover by Zoom Video Communications Inc.
  2. December 7, 2023: According to Reuters, Australia’s Woodside Energy (WDS) and Santos (STOSF) said they were in preliminary talks to create an A$80 billion ($52 billion) global oil and gas giant, as consolidation among international energy firms intensifies.
  3. December 10, 2023: According to WSJ, an investor group has submitted a bid for the famed department store chain Macy’s (M) that would take the retailer private at a value of $5.8 billion. Arkhouse Management, a real-estate focused investing firm, and Brigade Capital Management, a global asset manager, on December 1 submitted a proposal to acquire the Macy’s stock they don’t already own for $21 a share.
  4. November 5, 2023: According to Reuters, Allete Inc. (ALE), a U.S. power utility and renewable energy developer that has a market value of about $5.2 billion, including debt, is exploring a sale of the company.

Updates:

  1. According to Bloomberg, Equitrans Midstream (ETRN) is in the early stages of evaluating a potential sale.

SPAC Arbitrage

Potential SPAC IPO

  1. On December 6, 2023, Blue Room Acquisition Corp. (IBLUU) filed for a $200 million IPO.
  2. On December 6, 2023, Techybird Acquisition Corp. (TKBDU) filed for a $60 million IPO.
  3. On December 6, 2023, FG Merger III Corp. filed for a $150 million IPO.

SPAC IPO

  1. On December 1, 2023, Aimei Health Technology Co., Ltd (AFJKU) announced the pricing of its $60 million IPO.

SPAC Business Combination

  1. On December 4, 2023, TMT Acquisition Corp (TMTC) and eLong Power Holding Limited entered into a definitive business combination agreement.
  2. On December 5, 2023, Zalatoris II Acquisition Corp. (ZLS) and Eco Modular (EMODentered into a definitive business combination agreement.
  3. On December 6, 2023, Perception Capital Corp. IV (RCFA) and Blue Gold Holdings Limited entered into a definitive agreement for a business combination.
  4. On December 7, 2023, Achari Ventures Holdings Corp. I (AVHI) and Vaso Corporation entered into a definitive business combination agreement.

Completed

  1. On December 7, 2023, 10X Capital Venture Acquisition Corp. II (VCXA) and African Agriculture Holdings Inc. (AAGRcompleted their business combination.

List of all pending Merger Arbitrage deals:

Disclaimer: I hold long positions in Seagen (SGEN), Capri (CPRI) and Genetron Holdings (GTH). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.