The Frontier Airlines-Spirit Airlines merger vote has been pushed back to June 30th while the Spirit board evaluates updated offers including one from JetBlue. I reached out for some clarity and here’s what I found.
Spirit Press Release Addresses New Consideration
Spirit Airlines has been in the midst of an interesting negotiation for its future. The board has rejected JetBlue’s initial advances but in the week prior to a vote for shareholders to support or reject a proposal to merge with Frontier, the board received revisions to offers from JetBlue and Frontier. Each seemed to simply increase the break-up fee should regulators block the transaction, Frontier moved from $200 million to $250 million, JetBlue to $350 million with some of that paid to shareholders right away.
In the press release this week, Spirit clarified that not only was it evaluating the offers, it had given equal due diligence to both parties in accordance with their fiduciary responsibilities. This announcement seemed to represent a sea-change from the Spirit board of directors that they may be reconsidering the JetBlue offer.
However, shareholders received new proxy voting deadlines (6/29/2022) to vote on the same prior motion – to either approve or deny the Frontier merger. Neither a JetBlue acquisition nor a model that allows Spirit to remain independent was present in that pushed vote.
Is JetBlue Being Given Equal Consideration?
I posed a series of questions to a well-placed source at the carrier who responded on background and the condition of anonymity.
Question: Statements here today suggest that the JetBlue offer is being equally considered (equal due diligence materials.) If the JetBlue deal is being given equally considered, why is the vote solely for or against the Frontier deal?
Response: “The special meeting of Spirit’s stockholders was called to consider the merger agreement (as announced in February and amended in early June) between Spirt and Frontier. The proposed JetBlue deal is not currently subject to a stockholder vote because Spirit and JetBlue have not entered an agreement at this time.”
[Per the 6/8 press release], the stockholder meeting was postponed to allow Spirit’s Board of Directors additional time to continue discussions with Spirit stockholders, Frontier and JetBlue… Spirit is in discussions with both companies and the Board will provide a recommendation to Spirit stockholders ahead of the rescheduled meeting on 6/30.”
Question: There are truly three options for Spirit: Frontier merger, JetBlue acquisition, and remaining independent. Can you shed some light as to why just the one option is on the table for shareholders?
Response: [Much as above, there is no agreement with JetBlue therefore, nothing to vote on.] “With the 6/30 stockholder vote regarding the merger with Frontier, Spirit stockholders are voting whether or not to accept Frontier’s offer as stipulated in the original merger agreement.”
Is There A Point In Which The Board Would Recommend JetBlue over Frontier?
The Spirit board (and many analysts) have concluded that the Frontier deal is better for the long-term prospects of Spirit shareholders as the deals stand today. But at what point does the JetBlue offer exceed the benefits of the Frontier deal for shareholders. If JetBlue were to offer $4.5bn, $6bn, or $10bn, at a certain point it would have to make sense, and Spirit leadership would have to shift support.
What is that point where it goes from a clearly inferior proposal to a reversal in favor of the JetBlue offer? How much materially better is the Frontier deal for shareholders? For example, if a shareholder is going to receive a 50% premium on today’s share price but the board recommends against this, they must have reason to believe that shareholders will make more from the Frontier deal over time.
When I asked my source about this, they could not “speculate on the [long-term] financial benefits of each offer.” However, my gut tells me that they have little confidence in the JetBlue deal getting the regulatory approval they need. My source did not cite this in their response and could not comment on it even on background, but it would seem to be the major contention.
I have gone back and forth in my support for and against the Frontier merger and the same about an acquisition by JetBlue. I am reassured to see that the Spirit board is evaluating the JetBlue deal with renewed vigor but the longer I consider it the more I agree that Frontier is the right answer. I too have doubts about the regulatory environment, and I would like to see a ULCC competitor with scale in the United States.
What do you think? Does the Frontier Airlines-Spirit Airlines merger still make the most sense?