Moving Towards Deal Termination or Restructuring
Attorney Steve Segal, specializing in mergers and acquisitions at business law firm Buchalter, suggests that JetBlue’s move aims to either terminate the deal or negotiate a new purchase price. There are mounting concerns regarding Spirit’s finances and future, which may constitute a “material adverse effect.” This could provide JetBlue with a legal argument to cancel the deal without triggering the agreed-upon extension in July.
Sources familiar with the matter revealed that JetBlue recognizes the significant deterioration of Spirit’s business since the tie-up was agreed upon in July 2022.
Citi analyst Stephen Trent noted that if the appeals court upholds the lower court’s ruling, JetBlue shareholders would likely be relieved of assuming Spirit Airlines’ high debt load and cash-burning operations. Trent assessed the probability of the appeal succeeding at only 2%.
At the time Spirit accepted JetBlue’s acquisition offer, its equity had a market value of $3.8 billion. Including outstanding debt, its enterprise value stood at $7.6 billion. However, the airline’s market capitalization has since fallen to approximately $788 million.
If JetBlue manages to complete the transaction with new debt to finance the original deal, its debt-to-EBITDA ratio is expected to rise to 12 times or more by the end of this year, up from 9 times at the close of 2023, according to Moody’s investor service.
Furthermore, JetBlue’s annual interest burden is projected to increase to around $620 million compared to approximately $375 million in 2023, Moody’s added.
After the judge blocked the proposed merger earlier this month, analysts at JPMorgan commented, “JetBlue dodges a bullet.”