In a foreseeable move in the latest update to the Spirit Airlines merger saga, the much-anticipated shareholder vote on the combination of Spirit and Frontier Airlines, due today, has been adjourned by Spirit “to allow the board to continue discussions with Frontier and JetBlue Airways and to continue to solicit proxies from its stockholders”.
The latest modified offer from JetBlue was only made on June 27, and although Spirit had already rejected the offer and reiterated the Frontier combination as the “superior proposal”, rumblings from some major investors seem to have brought the parties back to negotiating table.
Robin Hayes, CEO of JetBlue commented: “It’s clear that Spirit shareholders have now handed the Spirit Board an undeniable mandate to reach an agreement with JetBlue. The Spirit Board has so far not walked away from the Frontier transaction and we continue to strongly recommend that Spirit shareholders let the Spirit Board know that preventing their shareholders from receiving the superior value JetBlue has proposed is unacceptable, by voting AGAINST the Frontier transaction.”
Despite continuing discussions with JetBlue, Spirit remains determined to pursue its tie-up with Frontier and continues to set out its main arguments in boardrooms and the media. On Tuesday (June 28), Spirit CEO Ted Christie, spoke with Jim Cramer on CNBC’s “Mad Money” segment, to reiterate the benefits of a merger with Frontier over JetBlue’s offer. Cramer was wholeheartedly in support of Spirit’s arguments and described JetBlue’s offer as “an illusory deal” that would only lead to “three years of litigation and then JetBlue loses” which would impact the value of Spirit Airlines.
Cramer pointed to US Assistant Attorney General Jonathan Kanter’s comments to the antitrust division, to the State Bar Association on January 24, where he spoke against corporate mergers that stifle competition. Cramer says this shows Kanter would not approve JetBlue’s proposal: “[Jonathan Kanter] gave a speech very clearly stating that he will not authorize any deal like JetBlue wants, and then go ahead with it is either naïve or greedy, but I don’t like either,” said Cramer.
Christie reiterated the claim that the equity share deal with Frontier represents the better proposal since it enables bother companies to share in the upsize of the continued recovery in air travel: “On a pro forma basis we think [the Frontier merger] could deliver north of $50 in value to our shareholders, which is well above where we are today and well above where JetBlue was thinking about us. Our Board was focused on that and wanted to make sure they were delivering the upside to our shareholders.”
JetBlue has hit back highlighting comments from other third-party observers that are in support of its proposal for Spirit. One such comment comes from Bloomberg’s George Ferguson, who referred to the fact that JetBlue has offered an all-cash deal with a breakage fee: “The big deal here is that JetBlue has come in all-cash, they’ve come in with breakage fees, and if you take the Frontier offer, you basically are waiting for synergies for a combined company, a couple years out... From a financial standpoint, it’s really hard to defend.” Other commentators have also taken the view that the all-cash offer represents better value today for shareholders than an all-stock bid when the stock market is falling.
Analysts are continuing to debate the regulatory response to both mergers, which is always difficult to predict. JPMorgan’s Jamie Baker ascribes “a reasonably high probability of regulatory passage to either of the two deals that are on the table right now”, while Cowen’s Aaron Glick has stated that anything can happen in court: “If you’re an investor and you think both transactions are unlikely to get approved by the DOJ, go with the bid that will pay you a ticking fee… and has a higher offer. Once you are in court anything can happen.”
The war of words between the two companies will continue to rumble on until the new voting day of July 8, and until then the two sides shall continue to curry favour with stockholders, staff and unions.