Spirit Airlines has delayed a shareholder vote on its proposed merger with Frontier Airlines amid an escalating bidding war, with JetBlue Airways trying to muscle in on the deal.
The vote, originally scheduled for Friday, was pushed to June 30. In a statement on Wednesday, Spirit said the extra time would allow its board “to continue discussions with Spirit stockholders, Frontier and JetBlue Airways,” which has offered a rival bid for the airline.
Early last week, a prominent shareholder advisory firm, Institutional Shareholder Services, issued a report recommending that Spirit shareholders reject the Frontier deal “as a signal to the board” to negotiate with JetBlue, which Spirit’s directors have repeatedly spurned. ISS said it was reasonable to assume that the Frontier deal would have an easier time winning regulators’ approval, but disagreed with Spirit’s assertion that a merger with JetBlue had virtually no chance because of antitrust issues.
Frontier responded by addressing one of ISS’s concerns, promising to pay Spirit a $250 million breakup fee if regulators prevent an agreed merger. JetBlue had initially offered a $200 million payment under the same circumstances. Then another influential shareholder advisory firm, Glass Lewis, weighed in, recommending that Spirit shareholders approve the Frontier deal.
This week, JetBlue improved its offer, raising its breakup fee to $350 million and offering to pay a portion upfront to shareholders should they approve its offer.
JetBlue’s chief executive, Robin Hayes, said in a statement that the postponement of the vote was “a necessary first step toward genuine negotiation.” He added, “Spirit shareholders are clearly urging 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 make for a simpler combination. Both airlines operate similar low-cost business models, but with different geographic strengths. Acquiring Spirit also makes sense for JetBlue, which has struggled to grow as much as it would like, though combining the two airlines would have its challenges.
Spirit has said it believes regulators would reject the JetBlue deal because JetBlue is already facing a suit to prevent a partnership between it and American Airlines in New York and Boston. The Justice Department’s main concern there, however, appears to be in protecting the independence of JetBlue, which has a reputation for bringing down prices in competitive markets.
Both ISS and Glass Lewis said it was reasonable to assume that the JetBlue deal would have a harder time being approved, but each said it 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 result in the creation of the fifth-largest airline in the United States, one that could better compete with the nation’s dominant four airlines.
