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.

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