In a surprising twist, Spirit Airlines shareholders vote down the proposed merger with Frontier, clearing a path for JetBlue’s tender offer and acquisition.
Spirit Shareholders Vote Down Merger With Frontier
In a shocking vote, Spirit shareholders voted against a merger with Frontier. The options put before shareholders was a vote for or against the merger agreement as sanctioned by Spirit’s board and did not represent options to either remain independent nor to become acquired by JetBlue. The combined company would have created a $6 billion airline, the fifth-largest in the US and the nation’s largest discount carrier.
In a feverous back-and-forth, competing bids both from Frontier and from JetBlue placed Spirit as the coveted prize in a battle for the Miramar, FL-based carrier. The Frontier Airlines-Spirit Airlines merger announced in February initially proposed (7) Frontier board seats for the combined new entity, (5) going to Spirit with no breakup fee if the merger did not secure regulatory approval.
More than four revisions have occurred since then with JetBlue’s offer including an all-cash acquisiton offer for Spirit by JetBlue Airways. The Spirit Board of Directors rebuffed each JetBlue offer though it provided due diligence materials to both carriers. Its concern boiled down to the likelihood of a deal being consummated, and Spirit’s concern stems from two areas: long-term shareholder value, and regulatory approval.
Spirit’s board indiciated that the target price for the combined carrier with a Frontier-Spirit merger would achieve $50/share over the next few years according to outside analysts, a better deal for shareholders. It’s regulatory concern was also due to both overlap of current routes, and JetBlue’s codeshare agreement with American Airlines under the so-called Northeast Alliance (NEA.) JetBlue is being sued by the DOJ who wishes to dismantle the partnership.
This back-and-forth exchange that has elevated both the price paid for Spirit and the breakup fee is a deal is not approved by the Biden administration regulators by both JetBlue and matched by Frontier. The breakup fee, added by JetBlue initially to assauge fears of a regulatory nature, has risen from $200 million to $350 million by both carriers before JetBlue placed a last-ditch $400 million on the table including an agreement to pay Spirit shareholders this portion early before regulatory approval is confirmed.
Despite nearly weekly headlines in June 2022 that read, “JetBlue raises its offer”, Barry Biffle’s Frontier was able to match each offer and retain Spirit’s board approval.
Shareholders voted this down despite backing from the board.
JetBlue Acquisition Likely To Go Ahead
While the shareholder vote for a merger between Spirit and Frontier was voted down, an acquisition by JetBlue was not voted for by Spirit shareholders. That said, the tender offer which sits at $33.50/share with $400 million paid to shareholders in a breakup fee if the deal does not pass regulatory hurdles remains on the table. A vote by shareholders against the merger paves the way for consideration and a proposed tender offer by JetBlue to Spirit shareholders for airline.
The airline can still remain independent, though that seems unlikely as shareholders appear poised to cash in on their shares.
Later in the week, I will have more on the likelihood of that deal being consummated but for now, the board still has not approved of the JetBlue offer either – all three carriers involved remain separate carriers.
Though it’s been an intense battle with bags of cash being thrown around, my thought was that shareholders would favor a larger Ultra Low Cost Carrier and stiff competition to the Big 4 network carriers with a Spirit-Frontier merger. With that now off the table, the JetBlue offer needs to be considered though I fear that JetBlue’s offer may diminish in value now that Frontier is no longer in the running.
What do you think? Did you expect this vote? Should Spirit stay independent or should shareholders take the money and run?