The prospects for a proposed sale of Spirit Airlines to Frontier Airlines appear to be under threat as a prominent shareholder advisory firm reversed its advice on the combination of the two budget airlines and recommended on Friday that Spirit’s investors reject the deal.
A bidding war has led Spirit to repeatedly postpone shareholder voting as it tries to gain support for the Frontier deal over an unsolicited offer from JetBlue Airways. The extra time, changing terms of the deals and market dynamics have led the consulting firm, Institutional Shareholder Services, to change its recommendation twice, most recently on Friday.
Days earlier, Frontier said it had no plans to alter its offer, acknowledging it was “far from getting the needed backing from Spirit’s shareholders.” At Frontier’s request, Spirit again postponed the shareholder vote this week to July 27. It was scheduled for Friday.
While JetBlue’s offering is more valuable than Frontier’s, Spirit and Frontier have argued that regulators are unlikely to approve a sale to JetBlue. But after factoring in the potential effect of a regulatory slowdown, ISS estimated that JetBlue’s offerings were still worth 11.5 to 19 percent more than Frontier’s.
Spirit’s management team has also repeatedly argued that the Frontier deal offers shareholders more long-term benefits: the two airlines share an advantageous business model, and their combination would be easier to realize and create a viable national budget airline. argued.
But movement in Frontier’s stock price since it and Spirit jointly announced the acquisition plan in February suggests investors are unsure of a market recovery ahead, according to ISS. In the end, it concluded, “JetBlue’s proposal appears to represent a superior alternative.”
Industry analysts generally agree that Spirit and Frontier are more complementary than Spirit and JetBlue, but combining two carriers is by no means an easy task. The Biden administration is also expected to keep a close eye on both deals as it is generally skeptical of major corporate mergers.
