Frontier Airlines, in a move crafted to deflect JetBlue Airways’ bid for South Florida-based Spirit Airlines, has added a $250 million reverse breakup fee to its merger proposal.
“The combination of a higher reverse termination fee and a much greater likelihood to close in a Frontier merger provides substantially more regulatory protection for Spirit stockholders than the transaction proposed by JetBlue,” said Mac Gardner, the Spirit chairman, in a joint news release with Frontier. The release was issued after the financial markets closed Thursday evening.
A reverse breakup fee refers to the amount of money paid to a targeted company if the would-be acquirer backs out of a proposed deal.
JetBlue, which is a major competitor of Spirit at Fort Lauderdale-Hollywood International Airport, originally offered $33 a share, or $3.6 billion cash for Spirit in April. The bid was well above a $2.9 billion cash-and-stock deal that Frontier made for Spirit in February.
Separately, the proxy advisory firm Glass Lewis of San Francisco has advised Spirit shareholders to opt for the Frontier deal, asserting that it would allow Spirit investors “to participate in the potential future upside of the combined company, including the anticipated post-COVID recovery in the airline travel industry.”
The Frontier deal would allow Spirit to continue to operate as a brand whereas the JetBlue deal would absorb the discount airline.
After some initial conversations with top executives of JetBlue, Spirit has continuously rebuffed JetBlue’s takeover efforts. Those efforts turned hostile late last month when the New York-based carrier made a revised tender offer of $30 a share and heavily lobbied major Spirit shareholders to vote against the Frontier proposal.
A vote by Spirit shareholders on the Frontier bid is scheduled for June 10.
Up until this week, one of JetBlue’s major talking points has been the absence of a reverse breakup fee if the Spirit-Frontier combination ends up being rejected by federal regulators. JetBlue’s offer comes with a $200 million fee.
Earlier this week, the proxy advisory firm Institutional Shareholder Services recommended that Spirit shareholders reject the Frontier offer, citing the absence of a fee.
After Frontier acted late Thursday, JetBlue said in a statement that Spirit’s board of directors “only went back to Frontier under pressure, when it became increasingly clear their shareholders would decisively reject the Spirit board’s flawed process and Frontier’s inferior transaction.”
But in the joint Frontier-Spirit statement, the two airlines reaffirmed their intention to merge and urged Spirit shareholder to vote “yes” on the deal next week.
“We continue to believe in the strategic rationale of a combined Spirit and Frontier, which brings together two complementary businesses to create America’s most competitive ultra-low fare airline,” said William A. Franke, chair of Frontier’s board and managing partner of Indigo Partners, Frontier’s majority shareholder,
“Given our conviction that regulators will find this combination to be pro-competitive, we have agreed to institute a reverse termination fee,” he said. “We look forward to bringing these two companies together and delivering on the benefits for all stakeholders.”
