Spirit Airlines said it would postpone the vote on the eve of the shareholders’ meeting on Frontier Airlines’ acquisition and continue to talk to both Frontier and rival suitor JetBlue.
The postponement until July 8 was a surprising shift in the fight that analysts could reshape the aviation sector. This decision has hit Frontier Airlines and Spirit Airlines leaders. Low-cost carriers want to integrate to compete more effectively with the four major domestic airlines.
Frontier’s equity and cash proposals value the spirit at about $ 2.4 billion, while JetBlue’s full cash proposal totals about $ 3.6 billion. Some carrots compete with investors, such as the amount rivals pay shareholders if a regulatory agency blocks a transaction. It’s $ 350 million for Spirit and $ 400 million for JetBlue.
“This shows that both proposals are attractive,” said Samuel Engel, senior vice president and aviation industry analyst at consulting firm ICF. “They want to see what the biggest dowry they can get.”
Frontier did not immediately respond to requests for comment on the announcement of the Spirit.
Robin Hayes, Chief Executive Officer of JetBlue, celebrated the postponement. This is the second time Spirit has postponed a shareholder vote for this transaction. “It’s clear that Spirit’s shareholders have handed over to Spirit’s board of directors an undeniable task to reach an agreement with JetBlue,” Hayes said in a statement.
Frontier argues that despite the low nominal value of the offer, the equity portion allows spirit investors to make more profits if the shares of the merged company rise. He also attacked JetBlue’s bid, saying it was unlikely to get regulatory approval. JetBlue claims that both bids are likely to be scrutinized.
Still, the frontier offer will face harsh views from the Biden administration, which is skeptical of the merger of large corporations. The number of major airlines has declined significantly over the last two decades due to the merger of airlines, and customers are now angry with airlines fighting a large number of flight cancellations.
In overtime trading on Wednesday, Spirit’s share rose 2.2% to $ 22.90, but still well below JetBlue’s $ 33.50.
Spirit and Frontier have announced a proposal to merge in February. A few weeks later, JetBlue countered the offer. What followed was a one-up manship round, sometimes bitter. Spirit rejected JetBlue’s offer as an “irony attempt” to thwart the merger with Frontier, JetBlue aimed at Spirit’s board of directors, and its relationship with Frontier hampered objectivity in assessing transactions. Insisted.
Frontier Chief Executive Officer Barry Biffle was Spirit’s Chief Executive Officer from 2005 to 2013. Frontier Chairman William A. Franke is also the Managing Partner of Indigo Partners. A private equity farm that once owned both companies. If the Frontier and Spirit contract is approved, he is expected to lead the board. Indigo owns a majority of the frontiers that are currently open to the public.
Last week, an influential advisory firm, Institute Shareholder Services, recommended that Spirit shareholders vote in favor of frontier bids. This is a reversal from previous recommendations based on the revised proposal from Frontier. On Tuesday, JetBlue offered yet another sweet suggestion.
Frontier Airlines and Spirit Airlines together make it the fifth largest airline in the United States, with a market share of 8.2%, lagging behind American Airlines, Southwestern Airlines, Delta Air Lines and United Airlines.
“If shareholders don’t approve the frontier deal, we’ll be back standalone,” Spirit CEO Ted Christie said in an interview with The New York Times this week. “Clarified the problem with JetBlue transactions.”
The main complaint of JetBlue’s bid spirit is that it cannot secure regulatory approval, especially given the antitrust scrutiny that JetBlue received from the Justice Department regarding its partnership with American Airlines. The agency said in a lawsuit that America, the largest airline in the United States, would use the partnership to “adopt its own disruptive competitors.” JetBlue and American have denied that their deal is anti-competitive and is fighting proceedings in court.
Frontier and Spirit will be able to compete for more customers while offering very low fares through cost savings and larger networks, putting pressure on larger rivals to keep fares down. Claims to be able to.
One argument against the merger is that ongoing competition between the frontier and the spirit will force them to keep fares low. The merger could ease some of that pressure and raise fares as well as fares. This is especially true for routes that serve airports currently operated by both, such as Orlando, Florida.
If you want to buy Spirit, you must go through consultations with federal regulators. One reason they may oppose the merger of Spirit and Frontier is that forcing the company to remain a rival will force them to keep fares low.