UPDATE – Spirit Airlines has postponed the stockholders meeting scheduled for June 10 to June 30 which is to decide in favor or against the merger proposal with Frontier Airlines. Spirit said on June 8 that it wants to allow more time for discussions with stockholders, Frontier, and JetBlue. The announcement follows a week of continuously amended offers. Spirit postpones final vote on merger offers until June 30.
On June 6, JetBlue submitted an improved proposal to acquire all common stock of Spirit. This follows the announcement of Spirit and Frontier on June 3 to amend their original offer to counter the previous one of JetBlue while yet another advisory firm has given its recommendation to the shareholders.
Spirit and Frontier said on June 2 that their amended offer from the original one in February now includes a $250 million reverse termination fee which Frontier will pay if the offer fails to get regulatory approval and antitrust clearance. They add that this scenario is an “unlikely event” as the two airlines think that the combination of the two will be “pro-competitive”. The reverse termination fee translates into $2.33 per share, well over $1.83 of the reverse break-up fee offered by JetBlue.
Spirit says they have had “extensive, constructive conversations” with stockholders, “who expressed support for the strategic rationale of our deal with Frontier.” Spirit stockholders will receive 1.1926 shares of Frontier plus $2.13 in cash for each Spirit share, which represents an aggerate 48.5 percent ownership and an economic value share of over fifty percent in the Spirit-Frontier combination. The Spirit Board notes that the JetBlue of $30 per share is well below the actual value of its stock price in the five years before the pandemic. Under the JetBlue offer, it will take shareholders two years to reach the same $30. By then, the stock price of the current Spirit Airlines would get to $40, based on earnings projections from analysts.
On June 3, Spirit said that proxy advisory firm Glass, Lewis & Co recommend stockholders to vote for the Frontier merger. Glass Lewis that the merger with Frontier primarily comprises equity in Frontier, which allows stockholders “to participate in the potential future upside of the combined company.” The advisory firm questions the real motivations behind the JetBlue offer, “given that Spirit has been a vocal critic of the Northeast Alliance (NEA) between JetBlue and American Airlines, and Spirit could be a witness for the Department of Justice (DoJ) on the matter.”
The Glass Lewis report follows three days after the recommendation of the Institutional Shareholder Services (ISS) to vote against the Frontier offer and in favor of the JetBlue proposal. In a media statement, JetBlue said: “The ISS report highlights the flawed process that the conflicted Spirit Board followed, which only underscores the need for Spirit’s Board to now come to the table and negotiate – this time in good faith – with JetBlue. Spirit shareholders can send a strong message to their Board by voting against the Frontier transaction and against adjournment. ISS highlighted that a deal with JetBlue will bring more value and cash certainty.” ISS also highlighted the lack of a reverse termination fee, which Spirit and Frontier have since then added in their amended offer on June 2.
Also on May 31, ten of Spirit’s stockholders filed lawsuits against the company with the Southern District New York Court. “The complaints generally allege that the defendants filed a materially incomplete and misleading registration statement or proxy statement with the SEC. Each of the complaints seeks injunctive relief preventing the consummation of the Merger, damages and other relief.” In a reaction, Spirit said that “the claims asserted in the complaints are without merit and that no supplemental disclosure to the Proxy Statement is required under any applicable rule, statute, regulation or law.”
JetBlue improves its offer – again
Then on June 6, JetBlue further improved its offer for Spirit, offering to acquire all outstanding common shares of Spirit for $31.50, up $1.50 from the previous offer. JetBlue increased its reverse break-up fee to $350 million of $3.20 per share, up by $150 million/$1.37 share on the previous tender offer and $100 million higher than offered by Frontier. JetBlue is also offering to pre-pay $1.50 per share of the break-up fee, structured as a cash dividend once Spirit stockholders would have approved its offer.
In a letter to Spirit stockholders, JetBlue CEO Robin Hayes says: “The key features of our Improved Proposal – the up-front cash payment and increased reverse break-up fee – reflect the seriousness of our commitment and underscore our confidence in completing this transaction. Additionally, given the similar regulatory risks of the two transactions and the increased reverse break-up fee we are prepared to provide, we believe our Improved Proposal remains a Superior Proposal by any measure.” Hayes also said: “We remain fully committed to acquiring Spirit.”
Spirit CEO Ted Christie wrote to staff that the Board and its legal and financial advisors will carefully study the latest proposal. On Jun 8, Spirit said that it had postponed the stockholders meeting by twenty days.
The inquiry is, does Spirit really need Jetblue or Frontier? Prudent consideration of Spirit’s product/service/route strategy proposes that an independent Spirit is the better path forward. As a shareholder, I’ve voted against the Frontier purchase of Spirit.
There’s some validity to Jetblue’s insistence that Spirit’s board has acquiesced somewhat readily to Frontier’s bid. (Spirit’s board is affiliated with Bill Franke/ Indigo Partners, Spirit’s former owner and Frontier’s current majority owner.) Frontier is just not paying adequately to Spirit’s shareholders.