Frontier’s Deal To Acquire Spirit Airlines Has Problems

Spirit Airlines sent me their release indicating that tomorrow will not be the day that shareholders vote on whether to sell to Frontier Airlines.

Instead the shareholder meeting will be adjourned and reconvened on July 8. Spirit wouldn’t do this if all their ducks were lined up to gain approval for the Frontier deal that their board has endorsed.

Spirit will “continue discussions with Frontier and JetBlue Airways Corporation (“JetBlue”) (NASDAQ: JBLU) and to continue to solicit proxies from its stockholders with respect to the Special Meeting.”

As I wrote earlier, it’s a no-brainer for Spirit shareholders to reject the Frontier deal and sell to JetBlue.

  • JetBlue is offering 40% more than Spirit
  • If the deal doesn’t close for anti-trust reasons they get $400 million and still own their shares (and can still sell the company)

Spirit’s argument has been (1) that the deal won’t close for anti-trust reasons, but JetBlue has increased the breakup fee if this happens, and (2) that the combined Frontier-Spirit would make Spirit’s shares worth $50 (versus the roughly $24 price Frontier is offering, and $34 JetBlue would pay).

To the point about the deal with Frontier adding so much value to Spirit shareholders, I wrote (and JetBlue blasted out, heh) “The only way that could happen is… inflation. But if the claim were true then Spirit’s board should be demanding more than $25 per share to sell!”

Spirit has a problem with getting to a close with Frontier, and that’s the only reason the shareholder vote would get delayed. JetBlue on the other hand has a problem because they could wind up owning this thing and it’s worth less to them than it is to Frontier.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. I have to wonder if the JetBlue offer is there to force up the price of the Frontier offer … so that when it closes, they will be left with less capital to compete with JetBlue?

  2. The chances are high that there has not been enough stockholders vote; they would not be asking people to vote if there are already enough votes.
    Given that so many airline stocks are held by the same investors, it may be that the funds will not vote either way because either vote will have negative implications for the other stocks they hold.

    In other words, it may well be that the institutional stockholders don’t support consolidation in a contested scenario.

  3. There is no truth to the rumor that Elon Musk intends to submit a bid. 🙂

  4. Spirit, Frontier and Jet Blue can all merge together to form one gigantic dumpster fire.

  5. I haven’t heard the Spirit leadership articulate why they don’t want to stay independent? In other words, why Jetblue and Fronter when they can probably thrive by themselves? Why aren’t more “analysts” discussing this?

  6. >Spirit, Frontier and Jet Blue can all merge together to form one gigantic dumpster fire.

    Comedy gold. The new airline would have 19-inch pitch, charge for everything including lowering the armrest, and specialize in long delays and cancellations.

  7. Alan,
    how dare you.
    Spirit is actually the 7th most reliable airline in the US – out of 10 – through the month of April according to the DOT.

    JBLU is solidly in the 10th position (of 10) year to date so whatever they touch will turn into, well, it ain’t gold.

  8. In my humble opinion there is more on the Frontier deal that has not come up tonthe light that is only more lucrative for those involved in the deal and really no other solid reason how Spirit shouldn’t take the jetBlue deal which is by far superior. In another excuse that the market will loose an ULCC, no need to worry there are plenty coming out Breeze, and Avelo are ready to serve that market. If Spirit continues to drag their feet on this deal they could end up loosing everything and be left all by themselves and really have issues to continue with their growth planned

  9. Actually this opinion article is incorrect. Spirit is trying to get you to understand that if you voted for the merge, you WOULD STILL HAVE SHARES WITH THE NEW AIRLINE, if sale to Jetblue, you won’t have any more shares because there wouldn’t be a new spirit. What you are doing is looking at what you are getting today from jet blues “Acquisition” verses what you could get with the “Merger” for the big company and still keep your shares.

  10. Apparently, Spirit’s board doesn’t have the votes to get its way. That’s the difficulty with public corporations. Shareholders have minds of their own. They don’t necessarily listen to the “conventional wisdom.” It’ll be interesting t see how this plays out.

  11. If Jetblue only wants aircrafts and crews, they can easily abandon slots to avoid anti-trust issue.
    And they can also ditch American since American needs Jetblue more.

  12. JBLU apparently doesn’t even have 5% of SAVE shares via their tender offer because if they did, they would have to notify the feds which would trigger a federal review if the deal can go forward.
    If JBLU is certain it has the votes, it needs to push the tender offer.
    And for all, a tender offer might be the fastest way for the DOJ to shoot down JBLU’s proposal since it is fatally flawed based on JBLU’s stated intention to remove capacity and raise fares which is contrary to DOJ practice, esp. in the airline industry in the regulated era.

  13. I just hope it keeps getting kicked down the road far enough where everyone walks away and actually have to run their own operation and grow organically. Gosh what a concept! Instead of eliminating a competitor, just operate and actually compete. What a concept!

  14. If the majority of Spirit shares are owned through institutional funds and ETFs, it seems obvious that they would want to show maximum returns in a given period, particularly during a bear market. It thus seems a no-brainer to take the much higher JBLU offer, which boosts return reporting — even if marginal. If the deal doesn’t clear DOJ, Frontier will just return with a new offer and the funds retain control over the decision.

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