Spirit Delays Shareholder Vote On Frontier Merger Until The End Of June

Two days after JetBlue Airways sweetened its acquisition bid, the latter has postponed its shareholder meeting until June 30. The ultra-low-cost carrier’s investors were scheduled to vote this Friday on whether to accept a competing offer from fellow ultra-low-cost Frontier Airlines.

The delay follows enhanced offers from both suitors earlier this week. Both sweeteners involved a breakup fee, an insurance policy that would kick in if the deal should be approved by shareholders but later fail to pass muster with federal antitrust regulators.

Frontier offered to pay a breakup fee of $250 million in its $2.9-billion bid to acquire Spirit, which would create the fifth-largest U.S. airline.

JetBlue responded by raising its breakup fee from $200 million to $350 million in its $3.4-billion hostile bid. Included in JetBlue’s bid is an upfront payment of about $164 million payable as a cash dividend “promptly following” a vote approving a merger of the carriers.

Spirit said on Wednesday that the delay will allow it to continue talks with Frontier Airlines and enter talks with JetBlue Airways, whose previous offers it had spurned.

“We welcome this development as a necessary first step toward genuine negotiations between the Spirit board and JetBlue,” responded JetBlue CEO Robin Hayes in a statement. “Spirit shareholders are clearly urging the Spirit board to engage with us constructively and provide us with the same information previously made available to Frontier so that we can reach a consensual transaction.”

Last month, JetBlue accused the Spirit board of being driven by “serious conflicts of interest,” referring to Bill Franke, the current chairman of Frontier Airlines and the former chairman of Spirit Airlines. Franke, a newcomer to the Forbes World’s Billionaire’s List, has built his fortune investing in low-cost airlines. His private equity firm Indigo Partners has a controlling interest in Frontier and stakes in several budget airlines around the world, including Europe’s Wizz Air, Mexico’s Volaris and Canada’s Lynx Air.

If either Frontier or JetBlue acquired Spirit, the merger would create the fifth-largest airline in the United States. Consolidation in the airline industry has not always been good for consumers, and neither deal would be a slam dunk with regulators, according to antitrust expert Florian Ederer, associate professor of economics at the Yale School of Management.

“But I would think that Spirit and Frontier merging is a bigger antitrust concern than Spirit and JetBlue merging,” says Ederer. “That’s because, while JetBlue is a low-cost carrier, it’s not necessarily an ultra-low-cost carrier like both both Spirit and Frontier. So I’d say that there’s a lower risk of the JetBlue-Spirit acquisition being blocked.”

Now Spirit’s shareholders have several more weeks to mull their options.

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