Spirit Airlines demands Thursday account suspension over Frontier offer
On the eve of a planned shareholder meeting on the acquisition of Frontier Airlines, Spirit Airlines said Wednesday night that it is delaying the vote and will continue to speak with Frontier and a rival competitor, JetBlue.
The postponement, until July 8, was a stunning turn in a battle that analysts say could reshape the aviation sector. The decision is a blow to the leaders of Frontier and Spirit, the budget carriers that want to merge so they can compete more effectively with the country’s four dominant airlines.
Frontier Spirit’s stock and cash proposal is estimated at approximately $2.4 billion, while JetBlue’s entire cash proposal is approximately $3.6 billion. There are also competing islands for investors, such as how much competitors would pay shareholders if regulators block the deal — $350 million in the case of Spirit and $400 million in the case of JetBlue.
“This suggests that both marriage proposals are attractive,” said Samuel Engel, senior vice president and aviation industry analyst at ICF, a consulting firm. “They want to see what the maximum dowry they can get.”
Frontier did not immediately respond to a request for comment on Spirit’s ad.
JetBlue CEO Robin Hayes celebrated the postponement, the second time Spirit has canceled a shareholder vote on the deal. “It is clear that Spirit shareholders have now handed Spirit’s board of directors an undeniable mandate to reach an agreement with JetBlue,” Hayes said in a statement.
Frontier argues that despite the low face value of its offering, the equity stake allows Spirit investors to benefit more if the combined company’s stock goes up. It also attacked JetBlue’s bid as less likely to win regulatory approval. JetBlue confirms that both bids will likely be screened.
However, Frontier’s presentation will also face a closer look from the Biden administration, which has taken a skeptical view of large corporate mergers. The number of major airlines has fallen dramatically over the past two decades as airlines have merged, and customers are currently fed up with airlines as they deal with mass flight cancellations.
Spirit shares rose 2.2 percent, to $22.90, in after-hours trading on Wednesday, but it’s still well below the $33.50 offered by JetBlue.
Spirit and Frontier announced a merger proposal in February. Weeks later, JetBlue responded with its offer. What followed were rounds of supremacy and, at times, bitter words. Spirit dismissed JetBlue’s offer as a “cynical attempt” to disrupt its merger with Frontier, while JetBlue targeted Spirit’s board of directors, arguing that its ties to Frontier impeded its objectivity in evaluating the deal.
Frontier’s CEO, Barry Biffle, was a CEO of Spirit from 2005 to 2013. William A. Franke, Frontier’s president, is also a managing partner at Indigo Partners. The private equity firm that previously owned both companies. He is expected to chair the board if the border spirit deal is approved. Frontier, now public, is still majority owned by Indigo.
Last week, the influential shareholder services advisory firm recommended that Spirit shareholders vote in favor of Frontier’s proposal, a reversal of an earlier recommendation based on a revised proposal from Frontier. On Tuesday, JetBlue presented another domestic show.
Combined, Frontier and Spirit will become the fifth largest airline in the United States, with an 8.2 percent market share, placing it behind American, Southwest, Delta and United.
“If our shareholders don’t agree to the Frontier deal, we’re going back to stand-alone,” Spirit CEO Ted Christie said this week in an interview with The New York Times. “We have made clear the issues we have with the JetBlue deal.”
Spirit’s primary complaint about JetBlue’s bid is that it won’t secure regulatory approval, particularly given the antitrust scrutiny JetBlue got from the Department of Justice over its alliance with American Airlines. In a lawsuit, the agency said American, the largest US airline, would use the partnership to “select a uniquely disruptive competitor.” JetBlue and the US company deny their deal is non-competitive and are fighting the case in court.
Frontier and Spirit emphasizes that with cost savings and a larger network, the common carrier will be able to compete for more customers while still offering ultra-low rates, putting pressure on larger competitors to maintain theirs as well.
One argument against the merger is that the ongoing competition between Frontier and Spirit will force them to keep prices low. With the merger, some of that pressure will be relieved, which could lead them to raise not only fares but also fees — particularly on routes serving airports where both operate now, such as Orlando, Florida.
Any acquisition of Spirit would have to go through a crowd of federal regulators. One reason they might oppose the merger of Spirit and Frontier is that forcing companies to remain competitive will cause them to keep prices low.