Spirit Airlines (NYSE: $SAVE), a leading low-cost carrier in the U.S., the Caribbean, and Latin America, saw its stock plummet on Tuesday, January 16, 2024. The drop came after a Federal Judge blocked a deal in which JetBlue Airways (NASDAQ: $JBLU) would have acquired Spirit Airlines.
The Failed JetBlue Acquisition
Spirit Airlines had agreed to an acquisition by Frontier Group Holdings earlier on. However, aggressive tactics by JetBlue led to the deal being canceled. At the time, Frontier warned that the deal could face opposition from regulators.
After the deal was announced, the Justice Department sued to block it. They argued that eliminating the biggest low-cost carrier in the U.S would drive up fares on low-cost flights. On Tuesday, January 16, 2024, a Federal judge sided with the DoJ and terminated the $3.8 billion deal. The judge said that the deal would reduce competition. He added that the merger violated the century-old antitrust law called The Clayton Act, which became law 109 years ago.
Why JetBlue Stock Is Rising
Soon after the ruling, JetBlue stock was trending upwards. Macroeconomic conditions have changed since they agreed to the deal, with airlines experiencing weakening demand.
Given the current conditions, an acquisition by JetBlue would have brought in more capacity and complex integration at a time when many companies are cutting back. Consequently, investors see this as good for the company in the near term.
However, the deal leaves JetBlue in a tough position regarding long-term goals. They pursued the Spirit acquisition to position them for long-term growth by cross-selling to Spirit customers. Additionally, it would have brought in much-needed jets and pilots necessary for growth. JetBlue stock closed trading on January 16, 2024, 4.91% higher at $5.13 per share.
Why Spirit Airlines Stock Dropped
After the ruling by U.S. District Judge William Young, Spirit Airlines (SAVE) stock plummeted. It closed trading on January 16, 2024, 47.09% lower, at $7.92 per share. Spirit’s valuation over the past few months has been tied to the price JetBlue was willing to pay for the company.
Without an acquisition deal, Spirit is in a tough spot. They will have to face headwinds in the airline industry alone. Frontier may make another offer for the low-cost carrier, which might be more amenable to regulators. However, such a deal will likely face regulatory opposition. Additionally, agreeing to a deal palatable to Spirit shareholders in the current environment will take more work.
Spirit Airlines Stock Forecast
Stock analysts give SAVE stock a hold rating. They predict a wide range for the stock in the next 12 months, with a high of $18 and a low of $7. The average target for SAVE stock is $12.25, a 54.67% upside.
Should You Buy SAVE Stock?
Based on the current macroeconomic conditions, which have led to a slowed demand in the airline industry, the future looks challenging for both JetBlue and Spirit. Consequently, investors should consider a wait-and-see strategy before deciding on either stock. As such, the hold rating for SAVE stock accurately represents the current situation.
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