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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.
JetBlue’s proposed deal to acquire Spirit Airlines is better for Spirit shareholders than Frontier’s is. Spirit management supports the Frontier deal, and it will probably be approved. JetBlue is offering 40% more for Spirit Airlines than Frontier is. With Spirit’s shares falling to slightly below Frontier’s offer, the market thinks the successful suitor will be Frontier, not JetBlue.
However a Frontier deal for Spirit is actually better for consumers, even though JetBlue’s product is better than the one offered by either airline.
When Frontier Airlines raised its offer to buy Spirit Airlines and gave the Spirit Airlines board cover to again endorse a merger between the two airlines (walking away from a much bigger offer from JetBlue that faces greater anti-trust scrutiny) it seemed like game over. The new offer even got the endorsement from two independent proxy advisory firms.
JetBlue isn’t done though. They’ve come out with a new, increased offer in advance of Thursday’s Spirit Airlines shareholders meeting, a last ditch effort.
Frontier Airlines increased its offer by $2 per share to acquire Spirit, and the Spirit Airlines board unanimously recommends it over JetBlue’s more lucrative – but regulatorily more risky – offer. That’s still less than the closing price of Spirit Airlines stock on Friday.
Spirit’s board almost has to take JetBlue’s offer now unless Frontier comes up with more cash. The federal government then has to make a choice whether to sign off on it in order to kill the JetBlue-American Airlines Northeast Alliance. If they make that offer, JetBlue almost has to take it.
Frontier winds up with divested slots and gates in the Northeast anyway. JetBlue massively overpays. American loses its New York strategy. And the big winners wind up Delta and United, who face less competition for New York (and Boston).
JetBlue wants Spirit Airlines shareholders to vote against merging with Frontier Airlines. They’ve reiterated their offer of more money to buy Spirit. They’ve reduced their offer from $33 to $30 per share but are dangling an additional 10% – back up to $33 per share in cash – subject to negotiation and due diligence.
JetBlue’s offer is for substantially more money. It does not provide greater certainty, as they claim, though. There is more regulatory risk though it’s difficult to evaluate exactly how much. There should be a path to solve this though through negotiation if JetBlue is as confident in closing the transaction as they claim: a higher breakup fee.
Spirit’s rejection was a gift to JetBlue which was already offering to overpay for Spirit. The “winner’s curse” was in effect, Since the market knows what Spirit is worth, in order to ‘win’ JetBlue was having to overpay. And indeed, Spirit is worth less to JetBlue than it is to Frontier.
JetBlue’s revised offer, unfortunately for their shareholders, was the same amount of money while extracting less value from the deal.
Spirit Airlines announced that their board has unanimously rejected JetBlue’s offer to pay more for the airline than Frontier, with whom the ultra low cost carrier had entered into a sale agreement.
JetBlue’s offer involved paying more but undermining Spirit’s low cost advantage and walking away from their more profitable business model. Instead JetBlue wanted Spirit for its planes, pilots, gates and slots.
JetBlue’s pilots have formally voted ‘no confidence’ in the airline’s Senior Vice President for System Operations, after miserable flight operations and terrible recovery efforts in recent weeks and months. Here’s what that means.
During its first quarter earnings call, American Airlines was asked about the consumer benefits of the tie-up with JetBlue. And the airline also got questions about how JetBlue’s bid for Spirit Airlines would affect it’s ability to keep the JetBlue partnership, since the government opposes the arrangement and will have a say in JetBlue’s merger attempt as well.
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 »
