Bidding war: JetBlue updates buyout proposal for Spirit Airlines

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JetBlue (JBLU) is showing no signs of dropping its bid to buy Spirit Airlines (S64) (SAVE), raising its buyout proposal once again.  

In an open letter to Spirit shareholders dated June 28, 2022, JetBlue Airways proposed a $400 million reverse break-up fee, which it would pay to Spirit in the unlikely event that regulators block the deal for antitrust reasons.  

JetBlue (JBLU) also increased accelerated prepayment to $2.50 per single Spirit share, which could be structured as a cash dividend to the carrier’s shareholders promptly after Spirit shareholder’s vote to approve the deal between both airlines.  

Encouraging Spirit shareholders to drop Frontier’s offer, JetBlue (JBLU) also offered a ‘ticking fee’, a mechanism that, according to the airline, would give Spirit shareholders a monthly prepayment of $0.10 per share between January 2023 and the closing of the deal. 

“[A ticking fee mechanism] represents an estimated aggregate ticking fee of up to $1.80 per share, of which the first $1.15 per share in payments will offset the reverse break-up fee or the merger consideration,” JetBlue (JBLU) wrote.  

The airline further explained that any other payments exceeding the $1.15 per share would be incremental to the total purchase price of $33.50 or the reverse break-up fee, increasing the general transaction to $34.15 per share in the event the transaction is consummated with total downside protection to $4.30 per share. Thus, it could guarantee a total of $470 million for Spirit if the deal is terminated. 

“After the Spirit Board’s failure to recognize our decisively superior offer, we’ve discussed our offer directly with Spirit shareholders and are now modifying our proposal in response to shareholders’ expressed interest, to include a monthly payment for shareholders, with the certainty of a significant cash premium at closing,” JetBlue CEO Robin Hayes said in the statement. 

Hayes said that Frontier’s revised proposal is “ultimately better for Frontier and its controlling shareholder” than for Spirit itself and urged shareholders “not to be misled by Spirit Board” at the upcoming Spirit Board meeting. 

“Spirit shareholders should not be misled by Spirit and Frontier’s rosy projections of a potential future stock price, which are based on highly flawed assumptions that fail to account for the actual market conditions, including the need for pilot pay increases and elevated fuel costs,” Hayes added.  

Frontier remains confident as bidding war heats up 

Meanwhile, Spirit Airlines (S64) (SAVE) currently seems to favor the merger agreement with Frontier rather than JetBlue (JBLU) and Frontier remains confident that its revised offer will be enough to secure the deal.  

Speaking to Reuters on June 27, 2022, Frontier’s chief executive Barry Biffle said that the Colorado-based carrier is “really excited” after receiving “good feedback” from Spirit Airlines (S64) (SAVE) regarding its improved proposal. 

Frontier’s most recent offer consists of an increased reverse break-up fee of $350 million, $4.13 per share, and an agreement to prepay $2.22 per share as a cash dividend to Spirit stockholders following approval of the transaction. 

In a statement issued on June 24, 2022, Spirit said it will give up one seat on the newly combined company’s board of directors in exchange.  

“We are thrilled to announce the terms of Spirit’s amended agreement with Frontier, which includes nearly double the per-share cash consideration of our prior agreement with Frontier while still allowing stockholders to benefit from the economic upside of airline industry recovery,” said Ted Christie, president and CEO of Spirit.   

Aiming to build an aggressive ultra-low-fare competitor in the US market, Frontier and Spirit started negotiations regarding the potential merger in February 2022. However, in April 2022, JetBlue (JBLU) showed an interest, submitting a $3.6 billion cash takeover bid.  

Spirit waived JetBlue (JBLU)’s initial proposal. However, the New York-based airline showed no signs of backing down and continued to submit several improved proposals.  

The meeting, during which Spirit’s shareholders will vote for or against a merger with Frontier Group, was initially scheduled to take place on May 10, 2022. However, the vote was initially moved to June 10, but has been delayed until June 30.  

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