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Spirit cancels Frontier bid vote as talks with JetBlue continue

Spirit cancels Frontier bid vote as talks with JetBlue continue
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On the eve of a planned shareholders’ meeting about a takeover by Frontier Airlines, Spirit Airlines said Wednesday night that they would postpone the vote and continue to speak with both Frontier and a rival suitor, JetBlue.

The postponement to July 8 was a stunning twist in a fight analysts say could transform the aviation sector. The decision comes as a blow to leaders of Frontier and Spirit, low-cost airlines looking to combine to compete more effectively with the country’s four dominant carriers.

Frontier’s stock and cash offering values ​​Spirit at approximately $2.4 billion, while JetBlue’s all-cash offering is approximately $3.6 billion. There are also competing carrots for investors, such as how much the rivals would pay shareholders if regulators blocked the deal — $350 million in the case of Spirit and $400 million in the case of JetBlue.

“This shows that both marriage proposals are attractive,” said Samuel Engel, senior vice president and airline industry analyst at ICF, a consulting firm. “They want to see what the maximum dowry they can get is.”

Frontier did not immediately respond to a request for comment on Spirit’s announcement.

JetBlue CEO Robin Hayes celebrated the postponement, the second time Spirit has postponed a shareholder vote on the transaction. “It is clear that Spirit shareholders have now given Spirit’s board an indisputable mandate to reach an agreement with JetBlue,” Mr. Hayes said in a statement.

Frontier argues that despite the lower par value of the offering, the equity stake allows Spirit investors to continue to benefit should the combined company’s shares rise. It has also attacked JetBlue’s bid, saying it’s less likely to get regulatory approval. JetBlue claims both offers are likely to be looked into.

Still, Frontier’s bid would also face harsh glare from the Biden administration, which is skeptical of large-scale corporate mergers. The number of major airlines has drastically declined over the last two decades as airlines merged and customers are currently angry with the airlines as they grapple with mass flight cancellations.

Spirit’s shares are up 2.2 percent in after-hours trading Wednesday to $22.90, but still well below the $33.50 that JetBlue has been offering.

spirit and limit announced a merger proposal in February. Weeks later JetBlue countered with his offer. What followed were overtaking maneuvers and sometimes bitter words. Spirit declined JetBlue’s offer as a “cynical attempt” to disrupt the merger with Frontier, while JetBlue targeted Spirit’s board, arguing that its ties to Frontier inhibited its objectivity in evaluating the deal.

Frontier CEO Barry Biffle was a top Spirit executive from 2005-2013. William A. Franke, Frontier’s chairman, is also a managing partner of Indigo Partners. the private equity firm that once owned both companies. He is expected to lead the board if the Frontier Spirit deal is approved. Frontier, now publicly traded, remains majority owned by Indigo.

Last week, the influential consulting firm Institutional Shareholder Services recommended that Spirit shareholders vote in favor of Frontier’s offer, a reversal of a previous recommendation based on a revised offering from Frontier. On Tuesday, JetBlue came up with another sweetened offer.

Combined, Frontier and Spirit would become the fifth largest US airline with an 8.2 percent market share, behind American, Southwest, Delta and United.

“If our shareholders don’t approve the frontier deal, we’ll be a separate company again,” Ted Christie, Spirit’s chief executive, said in an interview with the New York Times this week. “We have made clear the issues we have with the JetBlue transaction.”

Spirit’s main complaint about JetBlue’s bid is that it wouldn’t receive regulatory approval, especially given the antitrust scrutiny JetBlue has collected by the Justice Department through its alliance with American Airlines. The agency said in a lawsuit that American, the largest US airline, would use the partnership to “co-opt a uniquely disruptive competitor.” JetBlue and American deny their deal is anticompetitive and are fighting in court.

Frontier and Spirit claim that with cost savings and a larger network, their combined airline would be able to compete for more customers while offering very low fares, which would push larger competitors to keep their fares low as well.

One argument against a merger is that ongoing competition between Frontier and Spirit would force them to keep rates low. A merger would relieve some of that pressure, which could see them increasing not just fares but fees — especially on routes serving airports where both now operate, like Orlando, Florida.

Any acquisition of Spirit would have to be approved by federal authorities. One reason they might resist a Spirit-Frontier merger is that it would force the companies to remain competitors, urging them to keep fares down.

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