On the eve of a scheduled shareholders meeting on an acquisition by Frontier Airlines, Spirit Airlines said Wednesday night it was postponing the vote and would continue to talk to both Frontier and a rival suitor, JetBlue.
The postponement, until July 8, was a stunning turning point in a battle that analysts say could reshape the airline industry. The move is a blow to the executives of Frontier and Spirit, low-cost carriers that want to combine so they can compete more effectively with the country’s four dominant airlines.
Frontier’s stock and cash offer values Spirit at around $2.4 billion, while JetBlue’s cash offer totals around $3.6 billion. There are also competing carrots for investors, such as how much rivals would pay shareholders if regulators blocked the deal — $350 million in Spirit’s case and $400 million in JetBlue’s case.
“This indicates that both marriage proposals are attractive,” said Samuel Engel, senior vice president and airline industry analyst at ICF, a consulting firm. “They want to see what is the maximum dowry they can get.”
Frontier did not immediately respond to a request for comment on Spirit’s announcement.
JetBlue chief executive Robin Hayes celebrated the postponement, the second time Spirit has pushed back a shareholder vote on the deal. “It is clear that Spirit shareholders have now given the Spirit board an undeniable mandate to reach an agreement with JetBlue,” Hayes said in a statement.
Frontier argues that despite the lower face value of its offering, the share of shares allows investors in Spirit to benefit more if shares of the combined company rise. He also attacked JetBlue’s bid as less likely to win regulatory approval. JetBlue maintains that both offers will likely be considered.
Yet Frontier’s bid would also face a harsh stare from the Biden administration, which has taken a skeptical view of big-corporate mergers. The number of major airlines has shrunk dramatically over the past two decades as carriers have merged, and customers are currently upset with airlines as they deal with mass flight cancellations.
Shares of Spirit rose 2.2% to $22.90 in after-hours trading on Wednesday, but still well below the $33.50 offered by JetBlue.
Spirit and Frontier announced a proposed merger in February. A few weeks later, JetBlue hit back with its offer. There followed turns of one-upmanship and, sometimes, bitter words. Spirit dismissed JetBlue’s offer as a “cynical attempt” to disrupt its merger with Frontier, while JetBlue took aim at Spirit’s board, arguing that its ties to Frontier inhibited its objectivity in evaluating the deal .
Frontier’s chief executive, Barry Biffle, was a key executive at Spirit from 2005 to 2013. William A. Franke, Frontier’s chairman, is also a managing partner at Indigo Partners. the private equity firm that once owned the two companies. He is expected to lead the board if the Frontier-Spirit deal is approved. Frontier, which is now public, remains majority-owned by Indigo.
Last week, influential consultancy Institutional Shareholder Services recommended that Spirit shareholders vote in favor of Frontier’s offer, a reversal of an earlier recommendation based on a revised Frontier offer. On Tuesday, JetBlue presented another watered-down offer.
Together, Frontier and Spirit would become America’s fifth-largest airline, with an 8.2% market share, putting it behind American, Southwest, Delta and United.
“If our shareholders don’t approve of the deal with Frontier, we revert to a stand-alone company,” Spirit chief executive Ted Christie said in an interview with The New York Times this week. “We have made clear the issues we have with the JetBlue transaction.”
Spirit’s main complaint about JetBlue’s bid is that it wouldn’t get regulatory approval, especially given the antitrust review JetBlue got from the Justice Department for its alliance with American Airlines. The agency said in a lawsuit that American, America’s largest carrier, would use the partnership to “co-opt a uniquely disruptive competitor.” JetBlue and American deny that their agreement is anti-competitive and take the case to court.
Frontier and Spirit say that with cost savings and a larger network, their combined carrier would be able to win more customers while offering rock-bottom fares, which would also force bigger rivals to maintain fares.
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 relieved, which could lead them to raise not just fares but also fees, especially on routes serving airports where the two now operate, such as Orlando, Florida.
Any acquisition of Spirit would have to pass federal regulators. One of the reasons they might oppose a merger of Spirit and Frontier is that forcing the companies to remain rivals would cause them to keep prices low.
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