Frontier Loses Its Bid To Acquire Spirit, Looks Like Spirit-JetBlue Is Next

Spirit Airlines shareholders rejected selling the airline to Frontier. The offer was too low, made abundantly clear by JetBlue offering 40% more – whether a Spirit-JetBlue deal could be consummated in the face of likely government anti-trust opposition or not.

It was clearly a no-brainer for Spirit shareholders to reject the Frontier deal and sell to JetBlue.

• JetBlue is offering 40% more forSpirit
• If the JetBlue 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’s breakup fee makes it worth the hassle and risk, and (2) that the combined Frontier-Spirit would make Spirit’s shares worth $50 (versus the roughly $24 price Frontier offered, and $34 JetBlue would pay).

The notion of Frontier adding so much value to Spirit shareholders is only possible through inflation. But if the claim were true then Spirit’s board should have been demanding more than $25 per share to sell in the first place.

Spirit delayed and delayed the vote because it lacked shareholder support. Now shareholders have declined to sell and that merger deal has been terminated.

That leaves the JetBlue deal on the table. Spirit says they will pursue those discussions. Ironically Soirit is worth less to JetBlue than it is to Frontier‘

• It moves Spirit’s resources from a higher margin low cost carrier model to business model that’s proven lower margin

• And it does this while raising costs – giving many Spirit employees raises to match salaries of new peers, and retrofitting all of Spirit’s planes to a JetBlue standard as the carrier has said they would do.

JetBlue wants to buy Spirit for parts – gates, slots (though they’d divest many of those), pilots and planes. And they’re willing to pay $400 million for the chance to get the deal to close in the face of government opposition.

Meanwhile the most likely way to get regulatory approval is to trade the American Airlines joint venture, which the federal government is also opposing. If they can make that deal quickly, they can presumably have Spirit.

But that hurts consumers.