On the eve of a planned shareholder meeting on an acquisition by Frontier Airlines, Spirit Airlines said Wednesday evening that it was postponing the vote and would continue to talk to both Frontier and a rival, JetBlue.
The postponement, until July 8, marked a surprising turn in a battle that analysts say could reshape the airline sector. The decision is a blow to the leaders of Frontier and Spirit, budget airlines that want to combine to be able to compete more effectively with the country’s four dominant airlines.
Frontier’s stock and cash offering values Spirit at approximately $ 2.4 billion, while JetBlue’s fully cash offering totals about $ 3.6 billion. There are also carrots competing with investors, such as how much 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 the two marriage proposals are appealing,” said Samuel Engel, senior vice president and air 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 announcement.
JetBlue CEO Robin Hayes celebrated the postponement, the second time Spirit has pushed for a shareholder vote on the transaction. “It is clear that Spirit shareholders have given the Spirit board an undeniable mandate to reach an agreement with JetBlue,” Mr. There is in a statement.
Frontier argues that despite the lower face value of its offering, the share of shares allows Spirit investors to benefit even more if the combined company’s shares go up. It has also attacked JetBlue’s bid because it is less likely to win regulatory approval. JetBlue states that both bids are likely to be reviewed.
Still, Frontier’s offer would also face a harsh look from the Biden administration, which has had a skeptical view of major corporate mergers. The number of major airlines has declined dramatically over the past two decades as airlines have merged, and customers are currently upset with airlines as they struggle with massive flight cancellations.
Shares of Spirit rose 2.2 percent, to $ 22.90, in Wednesday’s off-hours operations, but still well below the $ 33.50 JetBlue has offered.
Spirit and Frontier announced a merger proposal in February. Weeks later, JetBlue responded with its offer. What followed were rounds of a breakthrough and sometimes bitter words. Spirit rejected JetBlue’s offer as a “cynical attempt” to disrupt its merger with Frontier, while JetBlue pointed to Spirit’s board, arguing that its links to Frontier inhibited its objectivity in ‘evaluate the agreement.
Frontier CEO Barry Biffle was a senior Spirit executive between 2005 and 2013. William A. Franke, president of Frontier, is also a managing partner of Indigo Partners. the privately held company that previously owned both companies. He is expected to lead the council if the Frontier-Spirit agreement is approved. Frontier, which is now public, remains the majority property of Indigo.
Last week, the influential institutional advisory firm Shareholder Services recommended that Spirit shareholders vote in favor of Frontier’s offering, an investment of a previous recommendation based on a revised Frontier offer. On Tuesday, JetBlue unveiled another sugary offer.
Combined, Frontier and Spirit would become the fifth largest airline in the United States, with a market share of 8.2 percent, placing it behind American, Southwest, Delta and United.
“If our shareholders don’t approve of the Frontier deal, we’ll be self-sufficient again,” Spirit CEO Ted Christie said this week in an interview with The New York Times. “We have made clear the problems we have with the JetBlue transaction.”
Spirit’s main complaint about JetBlue’s bid is that it would not get regulatory approval, especially given JetBlue’s antitrust scrutiny from the Justice Department over its alliance with American Airlines. The agency said in a lawsuit that American, the largest carrier in the United States, would use the partnership to “co-opt a disruptive-only competitor.” JetBlue and American deny their agreement is anti-competitive and are fighting the case in court.
Frontier and Spirit claim that with cost savings and a larger network, their combined carrier could compete for more customers while offering very low fares, pressuring larger rivals to keep their fares as well.
One argument against a merger is that continued competition between Frontier and Spirit would force them to keep fares low. With a merger, some of that pressure would be eased, which could lead them to raise not only fares but also rates, especially on routes that serve the airports where they both operate now, such as Orlando, Florida.
Any acquisition of Spirit should meet with federal regulators. One of the reasons they might oppose a merger of Spirit and Frontier is that forcing companies to remain rivals would push them to keep rates low.