On the eve of a planned shareholders’ meeting about a takeover by Frontier Airlines, Spirit Airlines said Wednesday night that it would close the vote and continue speaking with both Frontier and rival suitor JetBlue.
The postponement to July 8 was a surprise twist in a fight analysts say could transform the aviation sector. The decision comes as a blow to leaders of Frontier and Spirit, low-cost airlines looking to form an alliance to compete more effectively with the country’s big four carriers.
Frontier Spirit’s stock and cash offering is valued at approximately $2.4 billion, while JetBlue’s all-cash offering is valued at approximately $3.6 billion. There are also competitive carrots for investors, e.g. B. how much competing shareholders would pay if regulators stopped the deal — $350 million in the case of Spirit and $400 million in the case of JetBlue.
“That means both marriage proposals are attractive,” said Samuel Engel, senior vice president and airline industry analyst at consulting firm ICF. “They want to see what the maximum dowry they can get is.”
Frontier argues that despite the small face value of its offering, the stock allows Spirit investors to continue earning profits in the combined company’s shares. It has also attacked JetBlue’s bid, saying it’s less likely to get regulatory approval.
Still, Frontier’s bid will also come under the keen eye of the Biden administration, which is skeptical of large-scale corporate mergers. The number of major airlines has dropped drastically over the past two decades through airline mergers, and customers are currently angry with airlines as they resist mass flight cancellations.
Spirits shares rose 2.2 percent in after-hours trading on Wednesday to $22.90, but are well below the $33.50 offered by JetBlue.
Spirit and Frontier announced a merger proposal in February. Weeks later, JetBlue opposed his proposal. What followed was a period of one-sided and sometimes bitter words. Spirit dismissed JetBlue’s proposal as a “cynical attempt” to disrupt the merger with Frontier, while JetBlue addressed Spirit’s board of directors, arguing that its relationship with Frontier undervalued the deal. hampered his impartiality.
Frontier CEO Barry Biffle was an executive of Top Spirits from 2005 to 2013. William A. Franke, President of Frontier, is also a managing partner of Indigo Partners. The private equity firm that once owned both companies. He is expected to lead the board if the Frontier Spirit deal is approved. Frontier, which is now public, is owned by IndiGo.
Last week, influential consulting firm Institutional Shareholder Services recommended that Spirit shareholders vote in favor of Frontier’s offer, overturning an earlier recommendation based on a revised Frontier proposal. JetBlue unveiled another attractive offer on Tuesday.
Together, Frontier and Spirit will become the fifth largest US airline with an 8.2 percent market share, beating American, Southwest, Delta and United.
“If our shareholders don’t approve the frontier deal, we’re back to being a separate deal,” Spirit chief executive officer Ted Christie said in an interview with the New York Times this week. “We have resolved the issues we have with the JetBlue transaction.”
Spirit’s main complaint about JetBlue’s bid is that it won’t receive regulatory approval, especially given the antitrust investigation JetBlue received from the Justice Department over its alliance with American Airlines.
“We don’t treat our shareholders’ money like a lottery,” Christie previously told CNBC. “And that’s why we advise them to agree to the Frontier merger.”
Frontier and Spirit argue that with cost savings and a larger network, their combined airline will be able to compete for more customers while offering far lower fares and lowering their fares even versus larger competitors. urges.
One argument against the merger is that ongoing competition between Frontier and Spirit will force them to keep rents low. The merger would relieve some of that pressure, allowing them to increase not only fares but fees — particularly on routes serving the airports where both now operate, like Orlando, Florida.
Any acquisition of Spirit would require federal approval. One reason they might oppose a Spirit-Frontier merger is that forcing the companies to remain competitors will prompt them to keep rents low.
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