Spirit Airlines has received multiple options to merge or become acquired by Frontier and JetBlue respectively. As the bidding war heats up, the terms have changed and many point to the June 10th vote as instructive.
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New Terms For Frontier-Spirit Merger
Frontier has enhanced its initial offer to merge with Spirit Airlines by adding a $250 million breakup fee if the merger does not receive the regulatory approvals needed to merge. This bests the breakup fee offer from JetBlue ($200 million) and comes about a week ahead of the vote awaiting shareholders of Spirit on June 10th, 2022.
That vote, in which shareholders can make their selection known using their investment portals or advisors, will be either in favor or opposed to the agreement with Frontier but does not address the hostile takeover bid from JetBlue Airways. That said, a vote against the merger would almost certainly force the hand of the Spirit board of directors to reconsider.
What has not changed in the proposed merger with Frontier, is the value of the company, the board seats, or the amount each owner will receive for their Spirit shares in the new entity which will remain public but listed as Frontier Group Holdings (ticker symbol: ULCC.
Additional Pressure Ahead of Vote
In the last few weeks since the Spirit and Frontier merger deal was announced, there has been additional pressure on the situation forcing this shareholder vote. Just last week, ISS advised shareholders to vote against the merger citing issues with the valuation and the lack of a breakup clause which has since been amended.
“The value of Frontier’s cash-and-stock offer for each share of the discount carrier stood at $22.31 on Tuesday.
‘The (Spirit) board’s view that a Frontier merger has a safer path to regulatory approval is not supported by any guarantee of value for shareholders in the event of regulatory rejection,’ the proxy advisory firm said in a report.” – Reuters [emphasis mine]
The value of nearly all publicly-traded companies has dropped in recent weeks changing some of the dynamics. But with a looming recession ahead does it make more sense to take the JetBlue offer and grab the cash now while all airlines struggle with an economy in recession, or does it make more sense to make a larger ULCC to capture cost-conscious flyers?
CEO Ted Christie III of Spirit Airlines has been clear that he does not believe the Biden Administration will oppose the Frontier merger because it challenges the network carriers and creates a larger airline that will keep costs low. He may be right. Antitrust regulators are already in court with JetBlue as we have cited before.
Frontier had not altered its offer until the last few days, adding the breakup fee. That suggests that there was pressure or at least perceived doubt about the vote that Frontier felt the need to enhance its offer.
Conclusion
I have come out in favor of the Frontier merger over the rejected JetBlue offer in recent weeks. Looking ahead at the economic headwinds, a larger ULCC makes sense to me. That said, pressure around the vote is looming and the consequences whether Frontier and Spirit merge, Spirit is acquired by JetBlue, or all three remain independent will be felt throughout the industry. It should be an interesting few weeks ahead.
What do you think? Will Spirit Shareholders vote to merge over the larger cash offer from JetBlue? Will regulators approve either outcome?
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