Spirit delays Frontier vote, as bidding war with JetBlue heats up
Spirit Airlines has delayed a shareholder vote on its proposed merger with Frontier Airlines amid an escalating bidding war, with JetBlue Airways trying to get involved in the deal.
The vote, originally scheduled for Friday, has been pushed back to June 30. a statement on WednesdaySpirit said the additional time would allow its board “to continue discussions with Spirit shareholders, Frontier and JetBlue Airways,” which has offered a competing bid for the airline.
Early last week, a major shareholder advisory firm, Institutional Shareholder Services, released a report recommending that Spirit shareholders reject the Frontier deal “as a signal to the board” to negotiate with JetBlue, which the directors of Spirit repeatedly rejected. ISS said it was reasonable to assume that the Frontier deal would have an easier time winning approval from regulators, but disagreed with Spirit’s assertion that a merger with JetBlue had no virtually no chance due to antitrust issues.
Frontier responded by addressing one of ISS’s concerns, promising to pay Spirit $250 million in severance pay if regulators prevent an agreed merger. JetBlue originally offered a $200 million payout under the same circumstances. Then another influential shareholder advisory firm, Glass Lewis, stepped in, recommending that Spirit shareholders approve the deal with Frontier.
This week, JetBlue improves its offerraising his breakout fee to $350 million and offering to pay part of it upfront to shareholders if they approve his offer.
JetBlue chief executive Robin Hayes said in a statement that postponing the vote was “a necessary first step towards meaningful negotiation.” He added, “Spirit shareholders clearly urge the Spirit board to engage with us constructively.”
Industry analysts generally agree that Spirit’s proposed merger with Frontier, which was jointly announced in February, would simplify the combination. Both airlines operate similar low-cost business models, but with different geographic strengths. The acquisition of Spirit also makes sense for JetBlue, which has struggled to grow as much as it would like, although combining the two airlines presents challenges.
Spirit said it believes regulators will reject the JetBlue deal because JetBlue is already facing a lawsuit to prevent a partnership between it and American Airlines in New York and Boston. However, the Justice Department’s primary concern appears to be protecting the independence of JetBlue, which has a reputation for driving down prices in competitive markets.
Both ISS and Glass Lewis said it was reasonable to assume the JetBlue deal would have a harder time getting approved, but each said they had a chance.
“It seems safer to assume that both deals face significant regulatory uncertainty than to attempt to handicap Frontier’s potential advantage over JetBlue from a regulatory perspective,” ISS said in its report.
Either deal would create the fifth-largest airline in the United States, one that could better compete with the country’s four dominant airlines.