by Donald Wood
Last updated: 9:34 AM ET, Fri June 3, 2022
Frontier Airlines announced the addition of a $250 million termination fee as part of its offer to purchase Spirit Airlines.
According to The Associated Press, Frontier revealed it would pay the $250 million fee if the airline fails to complete the acquisition of the rival discount carrier. The deal would provide stockholders with the additional protection to feel more comfortable with the merger agreement.
Spirit CEO Ted Christie said shareholders have shown support for the purchase details with the new protection, and the offer was endorsed by directors of both airlines. Spirit stakeholders are scheduled to vote on June 10 on Frontier's offer, which has the unanimous support of the Spirit board.
In an attempt to block the Spirit-Frontier merger, JetBlue Airways offered a $3.6 billion deal to purchase Spirit, topping the $2.9 billion offered by Frontier. Spirit executives believe the proposal from JetBlue would be blocked by the government, which is already scrutinizing the New York-based carrier's deal with American Airlines.
As part of JetBlue's effort to get Spirit shareholders to reject the Frontier bid, the carrier added a $200 million termination fee to its offer. Frontier added the $250 million fee to provide peace of mind for Spirit stockholders.
As a result of the amended deal, JetBlue issued a statement:
"The Spirit Board of Directors' conflicts continue to guide their every move. Today's announcement demonstrates why, in their shareholders' best interest, they should negotiate with us in good faith - which, yet again, they have failed to do. Spirit's Board 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."
"The addition of a reverse termination fee in the face of a likely defeat is simply an acknowledgement that the regulatory profiles and timelines of both deals are indeed similar. Spirit had already admitted that its own prior unreasonably optimistic projections of receiving approval this year were in fact not accurate. Experts agree both transactions will receive the same level of scrutiny."
"JetBlue will review and assess the revised terms of the amended merger agreement once it has been made available. We believe we have put forward a clearly superior offer and remain prepared to negotiate in good faith a consensual transaction at $33, subject to receiving necessary diligence. We urge Spirit shareholders to continue to let the Spirit Board know they want an open, fair process, providing us a level playing field and full access to the same information available to Frontier. There is still time for the Spirit Board to do the right thing for their shareholders."
Earlier this week, International Shareholder Services (ISS), a proxy firm that companies hire to assess potential mergers and acquisitions, issued a report advising Spirit stockholders to reject the Frontier offer, noting that JetBlue offers more financial gain.
"On balance, a potential agreement with JetBlue would appear to offer shareholders superior optionality, allowing those concerned with the turbulence ahead to exit at a significant premium, while allowing those with a more optimistic outlook to reinvest the premium consideration," ISS wrote in the report.
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