On the eve of a scheduled shareholder meeting on a Frontier Airlines acquisition, Spirit Airlines said Wednesday night it was postponing the vote and would continue to talk with both Frontier and a rival suitor, JetBlue.
The postponement, until July 8, was a stunning twist in a battle that analysts say could reshape the airline industry. The decision is a blow to the leaders of Frontier and Spirit, budget airlines that want to combine so they can compete more effectively with the country’s four dominant airlines.
The Frontier stock-and-cash proposal values Spirit at approximately $2.4 billion, while JetBlue’s all-cash offering totals approximately $3.6 billion. There are also competitive roots for investors, such as how much the rivals would pay shareholders if regulators blocked the deal – $350 million in the case of Spirit and $400 million in the case of JetBlue.
“This says both marriage proposals are attractive,” said Samuel Engel, senior vice president and aviation industry analyst at ICF, a consulting firm. “They want to see the maximum dowry they can get.”
Frontier did not immediately respond to a request for comment on Spirit’s announcement.
JetBlue’s chief executive, Robin Hayes, celebrated the postponement, the second time Spirit has postponed a shareholder vote on the transaction. “It is clear that Spirit’s shareholders have now given Spirit’s board of directors an unequivocal mandate to reach an agreement with JetBlue,” Mr Hayes said in a statement.
Frontier argues that despite the lower par value of the offer, the equity portion will allow Spirit investors to profit further if the shares of the combined company rise. It has also attacked JetBlue’s bid because it is less likely to gain regulatory approval. JetBlue states that both bids are likely to be examined.
Still, Frontier’s offering would also face a tough look from the Biden administration, which is skeptical of major corporate mergers. The number of major airlines has declined dramatically over the past two decades due to airline mergers and customers are currently angry with airlines for dealing with massive flight cancellations.
Shares of Spirit were up 2.2 percent to $22.90 in after-hours trading on Wednesday, but still well below the $33.50 that JetBlue has offered.
Spirit and Frontier announced a proposal to merge in February. Weeks later, JetBlue responded with his offer. What followed were rounds of one-sidedness and sometimes bitter words. Spirit dismissed JetBlue’s offer as a “cynical attempt” to disrupt the merger with Frontier, while JetBlue targeted Spirit’s governance, arguing that its ties to Frontier hindered its objectivity in evaluating the deal. .
Frontier’s chief executive, Barry Biffle, was a top executive of Spirit from 2005 to 2013. William A. Franke, the chairman 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, remains largely in the hands of Indigo.
Last week, influential consulting firm Institutional Shareholder Services recommended that Spirit’s shareholders vote in favor of Frontier’s offer, a reversal of an earlier recommendation based on a revised Frontier offer. On Tuesday, JetBlue made another sweetened offer.
Combined, Frontier and Spirit would become the fifth largest U.S. carrier, with 8.2 percent market share, behind American, Southwest, Delta and United.
“If our shareholders don’t approve the Frontier deal, we’ll be back on our own,” Spirit’s CEO, Ted Christie, said in an interview with The New York Times this week. “We’ve made it clear what issues we are having with the JetBlue transaction.”
Spirit’s main complaint about the JetBlue offer is that it would not receive regulatory approval, especially given the antitrust scrutiny JetBlue has received from the Department of Justice over its alliance with American Airlines. The agency said in a lawsuit that American, the largest U.S. airline, would use the partnership to “co-opt a uniquely disruptive competitor.” JetBlue and American deny that their deal is anticompetitive and are fighting the case in court.
Frontier and Spirit argue that with cost savings and a larger network, their combined airline would be able to compete for more customers yet offer very low fares, putting pressure on bigger rivals to keep their fares low as well. to keep.
One argument against a merger is that continued competition between Frontier and Spirit would force them to keep rates low. A merger would ease some of that pressure, which could lead to them raising not only fares but fees, especially on routes to airports where both now operate, such as Orlando, Fla.
Any acquisition of Spirit should be cleared by federal regulators. One of the reasons they oppose a Spirit and Frontier merger is that forcing the companies to remain rivals would encourage them to keep rates low.
