Frontier Airlines Increases Offer For Spirit, Spirit Board Tells JetBlue To Pound Sand

Frontier Airlines increased its offer by $2 per share to acquire Spirit, and the Spirit Airlines board unanimously recommends it over JetBlue’s more lucrative – but regulatorily more risky – offer.

• Frontier is now offering $4.13 per share cash plus 1.9126 shares of Frontier.
• At Friday’s close of $10.54 per Frontier Airlines share, the deal is worth $24.29 per Spirit Airlines share.
• That’s still substantially below JetBlue’s offer of $33.50 per share.
• It’s even slightly below the per-share value of Spirit Airlines stock at Friday’s close.

The Frontier-Spirit deal will be approved by regulators, so it is easy for Frontier to increase the breakup fee if the deal is killed. Frontier gets one more director in the merged company.

A $350 million break-up fee is included in the deal. The stock is being offered to be overpaid. While the company is in play, it might be a good idea to take the JetBlue offer and see if it is approved.

• JetBlue is offering to divest assets where they’re most vulnerable to regulatory scrutiny
• But if the deal gets scuttled they pocket the money and could still try to do another deal elsewhere (this approach is uncertain to be sure, but offers two paths to greater upside)

If more planes are flying under an ultra-low cost model, it will drive down fares in markets where they are competing.

Frontier would be better off growing organically and being able to overpay in order to get regulatory approval.

If the shareholders follow the recommendation, they will not be held responsible for the overbidding that happened. American Airlines breathed a sigh of relief because the DOJ can't use this deal to get JetBlue to leave the Northeast Alliance.

The deal will be decided by the shareholders on June 30.

The airlines want the shareholders to vote against the merger. They are still willing to give more money to buySpirit. They have reduced their offer from $33 to $30 per share but are still offering 10% back up to $33 per share in cash.

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If Frontier doesn't come up with more cash, the board will have to take the offer. The federal government has to decide if it will sign off on the deal or not. They almost have to take that offer.

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The gift to JetBlue was to overpay for Spirit. The winner's curse was in effect since the market knows what Spirit is worth. It is worth less to the airline than it is to it.

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