JetBlue Airways planes are pictured at the gates of John F. Kennedy International Airport in New York on June 15, 2013.

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NEW YORK, Aug 8 (Reuters Breakingviews) – With transportation deals, as in life, it’s not the destination but the journey that matters. Canadian Pacific Railway’s (CP.TO) plan to complete its $27 billion merger with Kansas City Southern has been pushed back after more than a year in limbo. And shareholders in JetBlue Airways (JBLU.O)’s merger with Spirit Airlines (SAVE.N) could be stuck in a similar layover. Painful concessions may be involved. But with deals in quasi-monopoly industries, the key is to get the deals done.

The first union of major North American railroads in two decades was headed for battle after CP bid for KCS some 17 months ago. Rival Canadian National Railway (CNR.TO) launched a tough bid soon after, and it’s not an unusual strategy in industries that have few natural competitors. Since binding has clear price advantages for those bundling, losers are better off trying to thwart a deal – or encourage a competitor to overpay – rather than be left behind.

Regulatory concerns about consumer protection can make life particularly difficult for acquirers. Last month, US Senator Dick Durbin sent a letter urging the Surface Transportation Board, the watchdog responsible for approving the merger, to oppose the deal. What’s worse for business is that Durbin called STB Chairman Martin Oberman a friend after being appointed to this position in 2021. Oberman as recently said he was looking closely at the agreement between the railways.

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CP had planned for a few hiccups. To gain shareholder approval, the company financially closed the merger before it could operationally do so by placing shares in a trust. This should be undone in case regulators do not give their blessing.

A handful of Chicago-area communities have requested $9 billion to mitigate the potential impacts of the merger. Although the STB said in a draft review on Friday that the deal had little impact on the environment, that’s still an extremely high number. But the trust structure makes it harder for CP to roll back if demands get out of hand. Competitors have also complained that the merging parties should be forced to divest assets – perhaps a way to get their own part of the deal.

Still, it is important to remove every bit of value from the transaction. KCS’s share price had risen more than 80% over several months last year after private equity firm Blackstone made an opening. The multiple of business value to KCS sales was nearly a quarter higher than bidders’ valuations at the time.

The airlines deal is a little less complicated, but it has a similar story. Spirit and Frontier agreed to merge in February in a $5 billion deal, prompting JetBlue to jump in quickly with a higher bid for Spirit. After many back and forths, Spirit ditched Frontier and tied up with JetBlue. The problem is that the last deal on the table may not close until the first half of 2024 due to the regulatory process, which is much longer than what was expected in the abandoned Spirit transaction.

Now, the risk is that JetBlue’s plan for Spirit could require an increase in ticket prices, eliminating an ultra-low-cost carrier in some markets. This could antagonize regulators. JetBlue also paid top dollar, offering significantly more than Frontier. On top of that, he agreed to pay a cash advance, plus a fee that increases over time if the deal doesn’t go through.

In the end, the hassle may be worth it. JetBlue expects some $700 million in additional earnings per year, which if successful, is worth about double the company’s market capitalization. Still, any attempt by regulators to ensure competition could mean the deal is less lucrative for the company, and the review is creating uncertainty in the meantime.

Companies tend to take a long-term view when pushing for these mergers. It took nearly three years to complete the deal between Sprint and T-Mobile US (TMUS.O). Since then, shares of T-Mobile are up two-thirds while shares of Verizon Communications are down almost 14%. That suggests the regulatory battle may be worth it – assuming it’s won. In the meantime, shareholders just have to strap in for a bumpy ride.

(The author is a Reuters Breakingviews columnist. The views expressed are her own.)

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BACKGROUND NEWS

JetBlue Airways said on July 28 it had reached an agreement to acquire low-cost carrier Spirit Airlines in a $3.8 billion deal, winning a four-month bidding war waged against its Frontier rival. Spirit had previously agreed to merge with Frontier, but on July 27 it canceled its scheduled shareholder vote on the transaction. Frontier’s offer was primarily denominated in its own shares, while JetBlue’s offer is all in cash.

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Editing by Gina Chon and Sharon Lam

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and non-partisanship by principles of trust.