Frontier Airlines Increases Offer For Spirit, Spirit Board Tells JetBlue To Pound Sand

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.

  • Frontier is now offering $4.13 per share cash plus 1.9126 shares of Frontier.
  • At Friday’s close of $10.54 per Frontier Airlines share, the deal is worth $24.29 per Spirit Airlines share.
  • That’s still substantially below JetBlue’s offer of $33.50 per share.
  • It’s even slightly below the per-share value of Spirit Airlines stock at Friday’s close.

A Frontier-Spirit deal will be approved by regulators, so it’s both easy and not meaningful that Frontier also increased the breakup fee due to Spirit shareholders if anti-trust kills the deal to $350 million. Under this deal Frontier gets one more director and Spirit names one fewer in the combined company.

JetBlue’s deal is more money and contains a $350 million breakup fee. JetBlue is offering to substantially overpay for the stock. Considering that Frontier’s bid isn’t for more than Spirit’s stock is worth today (while the company is in play) it might be wise to take the JetBlue offer and see whether it gets approved.

  • JetBlue is offering to divest assets where they’re most vulnerable to regulatory scrutiny
  • But if the deal gets scuttled they pocket the money and could still try to do another deal elsewhere (this approach is uncertain to be sure, but offers two paths to greater upside)

Spirit-Frontier is better for customers, because it means more planes flying under an ultra-low cost model, driving down fares in markets where they compete.

Nonetheless, Frontier would probably be better off growing organically and allowing JetBlue to overpay, picking up gates and slots that JetBlue is forced to divest in order to gain regulatory approval.

If shareholders follow the Spirit board’s recommendation, JetBlue gets let off the hook from their own mistake in overbidding. And American Airlines breathes a sigh of relief because the DOJ can’t use this deal as leverage to get JetBlue to walk away from their Northeast Alliance.

Spirit Airlines shareholders will decide on June 30 whether or not to accept this deal.

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