Can Frontier Save Merger With Spirit Airlines? JetBlue Ups Its Bid, Again

The acquisition tug-of-war intensifies to win the belle of the airline ball Spirit Airlines, Inc. (NYSE: SAVE). Days ahead of the shareholder vote on the proposed merger with Frontier Airlines, Inc. (Nasdaq: ULCC), the latter sweetened its bid by at least US$2.00 per share on Monday.

Frontier raised the cash consideration of the proposed cash-and-stock deal to US$450 million, effectively upping its bid to 1.9126 Frontier shares and US$4.13 in cash for each Spirit share. The latter is an increase from the previous US$2.13 per share cash part of the deal.

The total valuation of the merger deal, previously at around US$2.9 billion, has since fallen due to Frontier’s declining stock price. As of last trading price, the total consideration for the deal approximates at US$22 per share.

The move follows JetBlue (Nasdaq: JBLU) revising its hostile takeover bid at an all-cash transaction valued at US$33.50 per share.

But for the Colorado-based airlines, Spirit shareholders should also look into the “proforma value” of the proposed merger.

“Our combination gives Spirit stockholders the opportunity to realize significant upside in excess of US$50 per share, delivering superior value compared to JetBlue’s proposal,” the company said in a letter to Spirit shareholders. “The Frontier-Spirit transaction delivers significantly greater value to Spirit stockholders compared to the opportunistic cash offer from JetBlue, which creates a hard cap on value at US$33.50 per share.”

The airlines also increased its proposed reverse termination fee to US$350 million, matching Jetblue’s after the latter also increased its bid. The amendment would also include a prepayment of US$2.22 per share once the merger is approved, outbidding Jetblue’s US$1.50.

Even after JetBlue’s “discussions with the Spirit team” that led to its increased bid, the Spirit board is sticking with the merger with Frontier, up for a shareholder vote on Thursday.

“The Spirit Board determined that the revised offer Spirit received from JetBlue on June 20, 2022 is not a Superior Proposal and continues to recommend Spirit stockholders adopt the merger agreement with Frontier,” the company said in a statement.

Proxy advisory firm Institutional Shareholder Services, who earlier recommended to vote against the Spirit-Frontier merger, has now joined fellow advisory firm Glass Lewis in advising the Spirit shareholders to vote for the deal.

JetBlue: “It doesn’t add up”

The deal was looking good, but JetBlue still had a card left to play.

Not to be outbid, the Delaware-based airlines increased its bid once again following Frontier’s revised proposal. The firm ups its reverse termination fee proposal to US$400 million and the prepayment amount to US$2.50 per share

JetBlue’s newest offerFrontier’s newest offer
Total per share valueUS$33.50~US$22.00
CompositionAll-cashCash and stock
(US$4.13 cash & 1.9126 Frontier share)
Reverse termination feeUS$400 millionUS$350 million
Prepayment per share once deal gets shareholder approvalUS$2.50US$2.22
Ticking fee (paid monthly per share pending the closing of proposed merger) US$0.10
Post-closing arrangement100% equity (with obligation to divest assets)51.5% equity

“The entrenched Spirit board is clinging to the inferior Frontier transaction with pie-in-the-sky promises and an overly simplistic regulatory argument. Their pitch to shareholders doesn’t add up,” said JetBlue CEO Robin Hayes in a letter to Spirit shareholders.

The airlines also committed to making US$0.10 per share dividends to Spirit shareholders starting January 2023 while its proposed merger deal is in the works.

The main contention with JetBlue’s proposed acquisition is the unlikelihood of it securing the antitrust regulators’ nod. The US Justice Department is already looking into the Northeast Alliance between the airlines and the American Airlines Group.

“A Spirit acquisition by JetBlue would lead to an antitrust dead end—a fact that no amount of JetBlue money, bluster or misdirection will change,” Frontier said. “Conversely, a Spirit-Frontier merger is demonstrably pro-consumer… given that it will expand ultra-low fare service to more destinations and provide more ultra-low fare alternatives to the Big Four and JetBlue.”

To address this concern, JetBlue has previously committed to “obligation to litigate and to divest assets of JetBlue and Spirit up to a material adverse effect on the combined JetBlue-Spirit,” that wouldn’t “materially and adversely affect the anticipated benefits under JetBlue’s Northeast Alliance.”

It also committed to the US Justice Department to contemplate “the divestiture of all Spirit assets located in New York and Boston,” hoping to appease concerns that the deal would increase the presence of the Northeast alliance.

Both Frontier and JetBlue have expressed confidence that the Spirit shareholders would vote in their favor on Thursday.

Frontier last traded at US$9.36 on the Nasdaq. down 11.2% on the day.

Spirit also fell 8.0% on the day, closing at US$22.57 on the NYSE. But following JetBlue’s latest offer, shares have gone up 5.14% after trading hours.

JetBlue last traded US$8.76 on the Nasdaq.

Information for this briefing was found via Wall Street Journal, Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply