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Spirit Shareholders Should Approve Frontier Deal, Glass Lewis Says

Published on Jun 8 2022 2:25 PM in General Industry tagged: JetBlue Airways / JetBlue / Spirit Airlines / Frontier Airlines / Frontier Group Holdings / Frontier Group Holdings Inc

Spirit Shareholders Should Approve Frontier Deal, Glass Lewis Says

Shareholder advisory firm Glass Lewis on Friday 3 June recommended that Spirit Airlines SAVE.N investors approve Frontier Group Holdings Inc's ULCC.O $2.9 billion takeover bid, saying it was the "best available" at this time.

The report, which helps guide investors on how to vote on the proposed merger, comes only hours after Frontier said it agreed to a break-up fee as part of a revised deal the companies hope Spirit shareholders will support.

"We believe the Frontier Merger Consideration provides Spirit shareholders with a fairly compelling valuation and premium for their Spirit shares, on balance," the report said, adding Glass Lewis believed the revised deal terms should offer "added protection" against potential regulatory risk.

Glass Lewis' report was published days after its larger rival Institutional Shareholders Services urged Spirit shareholders to vote against the deal because Spirit had failed to negotiate a break-up fee.

JetBlue Airways Corp JBLU.O is trying to muscle in on the deal with a hostile $3.3 billion offer that Spirit has rejected.

Glass Lewis wrote that JetBlue had not made a "sufficiently compelling case to warrant overriding the board's determination" and that the Frontier offer would have an easier path to closing than the JetBlue offer.

JetBlue said that it disagrees with the Glass Lewis recommendation and said the conclusion "rests on a remarkably superficial regulatory analysis."

JetBlue Submits Improved Proposal To Buy Spirit

The above news was followed by news that JetBlue Airways Corp JBLU.O said on Monday 6 June that the airline has submitted an improved proposal to acquire Spirit Airlines IncSAVE.N.

The proposal offers Spirit's stockholders superior value and prepayment of $1.50 per share of the cash consideration, JetBlue said.

TIMELINE-Twists And Turns In Takeover Battle For Spirit Airlines

All of the above news was followed by news that JetBlue Airways Corp <BLU.O> sweetened its takeover offer for smaller rival Spirit Airlines Inc <SAVE.N> as it tries to thwart the airline's merger with Frontier Group Holdings Inc <ULCC.O>.

The revised offer comes days after shareholder advisory firm Glass Lewis recommended Frontier's <ULCC.O> $2.9 billion takeover bid to Spirit shareholders, saying it was the "best available" at that time.

Below are the key events in the takeover saga:

Date Development
Feb. 7 Frontier makes a cash-and-stock offer of $25.83/share for Spirit Airlines
Feb. 8 Lawyers from the U.S. Justice Department say Spirit and Frontier's merger to create the fifth-largest airline in the country would face close scrutiny
March 10 Several public advocacy groups call on U.S. regulators to block Frontier's bid for Spirit
April 5 JetBlue makes an unsolicited $3.6 billion, or $33/share, all-cash bid for Spirit
April 6 JetBlue mounts a vigorous defense of its unsolicited $3.6 billion bid for Spirit, adding that it is "highly confident" of securing regulatory approval
April 7 Spirit says that it would enter into discussions with JetBlue on its $3.6-billion offer as it could likely lead to a "superior proposal" to the one from Frontier
May 2 Spirit rejects JetBlue's $33/share offer, saying it had a low likelihood of winning regulatory approval
May 10 Head of Sun Country Airlines <SNCY.O> throws his backing behind potential merger in the ultra-low-cost airline sector
May 11 Spirit says it will hold a shareholder meeting on June 10 for a vote on its proposed merger with Frontier
May 16 JetBlue makes hostile all-cash takeover offer of $30/share and adds it was ready to "negotiate in good faith a consensual transaction at $33"
May 19 Spirit Airlines urges shareholders to reject the hostile offer from JetBlue, saying it was "a cynical attempt to disrupt" its merger with Frontier
May 31 Proxy advisory firm ISS urges Spirit shareholders to vote against a proposed merger with Frontier
June 2 Frontier agrees to pay a break-up fee of $250 million in a bid to salvage its $2.9 billion acquisition of Spirit Airlines
June 3 Shareholder advisory firm Glass Lewis recommends Spirit Airlines investors approve Frontier Group's $2.9 billion takeover bid, saying it was the "best available" at this time.
June 6 JetBlue sweetens its takeover bid for Spirit by offering $31.50 per share in cash, comprising $30 per share at deal close and the prepayment of $1.50 per share of the reverse break-up fee.

Bidding War For Spirit Airlines Heats Up; JetBlue Sweetens Offer

All of the above news was followed by news that JetBlue Airways Corp JBLU.O on Monday 6 June improved its offer for Spirit Airlines Inc SAVE.Nintensifying the bidding war for the ultra-low-cost-carrier whose shareholders are due to vote this week on a merger agreement with Frontier Group Holdings Inc ULCC.O.

JetBlue increased its reverse break-up fee by $150 million to $350 million, payable to Spirit shareholders in case the deal falls through due to antitrust reasons. Spirit's shares closed up 7% on Monday 6 June.

The revised offer comes days after Frontier agreed to pay Spirit a break-up fee of $250 million.

Under JetBlue's revised termsSpirit shareholders would receive $31.50 per share in cash, comprising $30 at the deal's close and prepayment of $1.50 from a raised reverse break-up fee soon after Spirit shareholders vote to approve a deal. As a result, its offer is now worth $3.4 billion.

Its shareholders are scheduled to vote on Friday on Frontier's stock-and-cash offer, which was initially valued at $2.9 billion. Spirit said its board will evaluate JetBlue's new proposal and respond in due course. It asked shareholders not to take any action at this stage.

US carriers have been trying to expand their domestic footprints while being dogged by persistent labor and aircraft shortages. Either of the two deals will create the fifth-largest U.S. airline.

Spirit rejected JetBlue's offer last month saying it had a low likelihood of winning approval from US regulatorsprompting the New York-based carrier to launch a hostile takeover bid.

Savanthi Syth, airline analyst at Raymond James, said the revised offer is likely to "appease" Spirit shareholders who have antitrust concerns about a deal with JetBlue.

In the latest offer, JetBlue did not offer to unwind its "Northeast Alliance" (NEA) partnership with American Airlines <AAL.O>. That was a sticking point with Spirit, which has been leery of antitrust concerns. The Justice Department sued JetBlue in September to unwind the partnership.

JetBlue chief executive Robin Hayes told CNBC the airline had made "unprecedented divestiture commitments" to win regulatory approval. "We need the Spirit board to seriously consider our offer," he said.

Industry sources said Spirit is still committed to the deal with Frontier, but the company may be forced to switch sides if it faces mounting pressure from large institutional shareholders.

Last week, proxy advisory firm Glass Lewis recommended Spirit investors back the Frontier deal; another proxy firm, Institutional Shareholder Services Inc, advised against it.

The new JetBlue offer will trigger ISS and Glass Lewis opinion revisions on the Frontier deal, the sources added.

On Monday 6 June, JetBlue also reached out to Spirit workers, promising them better pay and benefits, more jobs, career development and no furloughs.

Spirit's agreement with Frontier has also pledged to avoid any job losses and add 10,000 direct jobs by 2026.

Spirit Airlines Delays Shareholder Vote On Frontier Deal To 30 June

All of the above news was followed by news that Spirit Airlines Inc SAVE.N said on Wednesday 8 June that it has postponed to 30 June a shareholder meeting to vote on the proposed merger agreement with Frontier Group Holdings Inc ULCC.O.

Spirit Airlines Delays Shareholder Vote On Frontier Deal

All of the above news was followed by news that Spirit Airlines Inc SAVE.N said on Wednesday 8 June that it had postponed a shareholder vote on its sale to Frontier Group Holdings Inc ULCC.O to 30 June from 10 June after JetBlue Airways Corp JBLU.O sweetened a rival offer for the budget carrier.

Spirit assessed it did not have enough shareholder support in favor of the deal with Frontier, even after the latter enhanced it last week by adding a $250 million regulatory break-up fee, according to people familiar with the matter.

Spirit reiterated on Wednesday 8 June that it had not changed its recommendation to shareholders to back the Frontier deal.

The company received an improved offer from JetBlue on Monday 6 June that included an increased $350 million break-up fee which would be payable to Spirit if antitrust reasons stopped the deal.

Either of the two deals for Spirit would create the fifth-largest US airline. US carriers have been trying to expand their domestic footprint while being dogged by labor and aircraft shortages.

Spirit will now seek to get better offers both from Frontier and JetBlue, the sources said. While JetBlue's $3.4 billion all-cash offer is higher than Frontier's, Spirit has said it does not believe regulators will approve a tie-up with JetBlue given the latter's partnership with American Airlines Group Inc AAL.O.

"The special meeting was postponed to allow the Spirit Board of Directors to continue discussions with Spirit stockholders, Frontier and JetBlue Airways," the low-cost airline said in a statement.

JetBlue said it welcomed Spirit's move "as a necessary first step toward genuine negotiation".

Spirit shares fell 1.2% in premarket trading on Wednesday 8 June, while JetBlue and Frontier traded slightly higher.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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