After being on life support for months, Spirit and Frontier Airlines on Wednesday decided to call it quits on their planned merger, opening the door for a potential JetBlue Airways acquisition of Spirit.
The planned merger of Frontier and Spirit, first reported in February, was never able to obtain the approval of the majority of Spirit shareholders after JetBlue interfered with its more attractive all-cash offer.
However, Spirit management persisted in pushing for the Frontier deal, claiming that the JetBlue merger had little chance of being approved by regulators. A purchase for Spirit, which would establish the country’s fifth largest airline, would be smaller than numerous airline mergers in recent decades, which have transformed the country’s ten largest airlines into four mega-carriers controlling 80% of US air traffic. However, the Biden administration has adopted a much tougher stance on antitrust law issues and promised to encourage more competition within the aviation sector.
The company’s management ultimately failed to gain shareholder support for its argument, causing the company to repeatedly delay the approval meeting for the Frontier acquisition.
Finally, on the day of the most recent voting deadline, Spirit said it will halt the deal rather than allowing a continued delay.
“While we are disappointed that we had to terminate our proposed merger with Frontier, we are proud of the dedicated work of our team members on the transaction over the past many months,” Ted Christie, CEO of Spirit, said. “Moving forward, the Spirit board of directors will continue our ongoing discussions with JetBlue as we pursue the best path forward for Spirit and our stockholders.”
While Frontier had suggested a cash and stock acquisition valued at roughly $1 billion less than the JetBlue bid, JetBlue made an offer to acquire Spirit for nearly $3.7 billion, agreeing to pay full cash for its shares.
Frontier said in a statement that it anticipated growing even in the absence of the merger by luring passengers with extremely low fares.
“While we are disappointed that Spirit Airlines shareholders failed to recognize the value and consumer potential inherent in our proposed combination, the Frontier Board took a disciplined approach throughout the course of its negotiations with Spirit,” William Franke, the CEO of Frontier, remarked. “As we enter our next chapter, Frontier remains well-positioned to deliver significant value to our shareholders as we serve the growing demand for affordable air travel.”
Spirit and Frontier joining forces would have combined two airlines with extremely low base rates but additional fees for carry-on luggage and most other items.
According to the US Department of Transportation, Spirit received 11.45 complaints for every 100,000 passengers in 2021, by far the highest rate. On that basis, JetBlue received a close second-place finish with 6.38 complaints, followed by Frontier with 5.78. With 49.31 complaints for every 100,000 customers in 2020, Frontier had by far the worst complaint rate.
The company said it still plans to make an offer for Spirit Airlines.
According to the airline’s statement, “We are pleased that the merger agreement with Frontier has been terminated and we are engaged in ongoing discussions with Spirit toward a consensual agreement as soon as possible. We remain fully committed to completing this transaction so we can create a compelling national challenger to the dominant airlines with more opportunities for all.”
Spirit’s (SAVE) stock increased by 3% in after-hours trading in response to the announcement, while Frontier’s and JetBlue’s (JBLU) stock just slightly moved higher or down.