Spirit Calls Off Merger Deal with Frontier Airlines

 - July 27, 2022, 6:07 PM
Spirit Airlines has terminated its merger agreement with Frontier and will "continue ongoing discussions with JetBlue." (Photo: Spirit Airlines)

Spirit Airlines has terminated its merger agreement with Frontier Airlines, the companies said late Wednesday, creating an opening for a potential deal between Spirit and New York-based JetBlue. Spirit indicated it would continue talks with JetBlue, which has made several overtures for the Florida-based ultra-low-cost carrier (ULCC) it characterized as superior to the original Frontier offer.

“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,” said Ted Christie, president and CEO of Spirit Airlines. “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.”

JetBlue’s multiple bids for Spirit following the original February 7 agreement reached between Spirit and Frontier led to several postponements of shareholder votes at the Florida-based ULCC to consider the new offers.

JetBlue characterized its first offer for Frontier, tendered on April 5, as a “superior proposal” to the original offer from Frontier. Its cash offer represented a premium of some 50 percent on Spirit’s stock price on April 4 and a higher monetary value than the cash and stock offer from Frontier. Spirit and Frontier on February 7 agreed to merge but didn’t expect the deal to close until the second half of the year.

On May 2 Spirit rejected JetBlue’s acquisition offer, adding that the proposed transaction represents “an unacceptable level of closing risk” to its stockholders. On May 16 JetBlue said it had filed a “Vote No” proxy statement urging Spirit Airlines shareholders to vote against the planned Spirit-Frontier Airlines merger, signaling the launch of a hostile takeover bid.

Despite the apparent premium the JetBlue offer represented, Spirit again said that deal would likely have faced considerable antitrust scrutiny given JetBlue’s ongoing fight with the Department of Justice (DOJ), which filed suit against the company for last year’s Northeast Alliance agreement. According to the DOJ, the series of agreements would result in the consolidation of the two airlines in New York and Boston, eliminating what the department called important competition in those cities and decreasing JetBlue’s incentive to compete with American Airlines elsewhere.

JetBlue subsequently called Spirit’s antitrust rationale “a smokescreen to distract from the fact that its merger with Frontier faces similar regulatory risk yet offers no shareholder protections.”

“Ask yourself a simple question: why won’t the Spirit Board engage with us constructively?” said JetBlue in a letter to Spirit’s shareholders. “The interests of Bill Franke’s Indigo Partners and the long-standing relationships between the two companies is the obvious answer.”

The architect behind the Spirit-Frontier deal, Franke has served as chairman of Frontier’s board of directors since 2013 and as managing partner of private equity fund Indigo since 2002. He previously also served as Spirit’s chairman. According to the Forbes.com media group, most of his $2.4 billion fortune comes from his 40 percent stake in Frontier and nearly $1.4 billion in investments through Indigo.