Spirit shareholders sink Frontier merger, leaving airline’s future up in the air
Spirit Airlines’ shareholders on Wednesday rejected a merger with Frontier Airlines after a monthslong bidding war between Frontier and JetBlue Airways, creating uncertainty about the future of the Broward Countybased airline.
Spirit CEO Ted Christie said in a statement he was “disappointed” to terminate talks with Denver-based Frontier but said Spirit would continue discussions with New York-based JetBlue over its unsolicited
$3.7 billion cash offer. That bid is roughly $1 billion greater than Frontier’s cash-and-stock bid.
“Moving forward, the Spirit Board of Directors will continue our ongoing discussions with JetBlue as we pursue the best path forward for Spirit and our stockholders,” said Christie, even though he had previously said Spirit would keep flying solo if its shareholders rejected Frontier’s bid.
If Spirit and JetBlue executives and directors agree on terms of a sale of the South Florida airline to JetBlue, federal regulators would then review the deal and it could take a couple of years before they render a final decision.
Frontier CEO Barry Biffle told Spirit’s leadership this month the airline had made its, “last, best and final offer.”
“It’s dead,” said Henry Harteveldt, a travel-industry analyst at Atmosphere Research Group based in San Francisco, of Spirit and Frontier trying to close a merger deal that the South Florida airline’s stockholders would approve. “It’s a very bitter breakup and Frontier is moving on.”
The stakes are high for Miramar-based Spirit, which employs 3,400 people in South Florida and is the leading airline by market share at Fort Lauderdale-Hollywood International Airport. Choosing Frontier or JetBlue as a partner would create the country’s fifth-largest airline, giving it enough market share to compete with the biggest legacy airlines: American Airlines, Delta, Southwest and United.
“Spirit leadership cannot stand in the way of a bona fide proposal from JetBlue,” Harteveldt said. “If you have JetBlue extending an all-cash offer for Spirit stock in the current business environment, where economic uncertainty grows by the day, I think institutional shareholders will look at that and say that one bird in the hand is worth two in the bush.”
Frontier’s final offer landed at $4.13 per share of Spirit stock, a $2 increase for the cash portion from its original February offer, along with a $350 million termination fee, up from $250 million, if Spirit’s shareholders had approved the transaction but the airlines couldn’t get federal regulators to go along with it.
JetBlue adjusted its final offer in late June, upping its bid to an equivalent of $34.14 per share with a $400 million termination fee if federal regulators rejected its acquisition of Spirit.
The Spirit shareholders’ vote, which was delayed four times before taking place on Wednesday, asked stockholders for approval only on a merger with Frontier.
In April, JetBlue flew into the picture with its lucrative cash offer aimed at thwarting a merger between the two discount airlines. During
the bidding war, Frontier and JetBlue sweetened their offers, but Spirit consistently favored the Frontier transaction. Spirit’s board and executives worried that federal regulators wouldn’t approve a sale to JetBlue.
“What is JetBlue’s motivation in all this?” Spirit’s Christie said in a call with airline-industry analysts in late May. “I believe it is a cynical attempt to disrupt our merger with Frontier, because a Spirit-Frontier combination poses a competitive threat . ... My message to Spirit stockholders is, don’t be distracted by JetBlue’s tender offer.”
Industry experts said a confluence of factors led to a Spirit-Frontier merger crashing. Volatility in the airline sector, high fuel costs, persistent staffing challenges and the volatile U.S. economy were the key elements, they said. Also, influential proxy firm Institutional Shareholder Services said JetBlue’s more lucrative cash offer was a safer bet for investors. The firm had swung back and forth before on July 15 finally urging Spirit’s shareholders to reject Frontier’s offer.
Glass Lewis, another prominent investor advisory firm, recommended Spirit’s stockholders approve a Frontier merger.
Meanwhile, Spirit continues building a new headquarters in Dania Beach, closer to the Fort Lauderdale airport. The 300,000square-foot office will include a training center, assembly space and amenities for employees.