Spirit Airlines (NYSE:SAVE) stock closed higher by 7% after JetBlue (NASDAQ:JBLU) raised its offer to acquire the discount airline. Under the terms of the revised offer, JetBlue will now offer Spirit $31.50 per share in cash. Of that sum, Spirit will receive $30 per share if the deal closes. A raised reverse break-up fee prepayment will make up the remaining $1.50.
Last month, JBLU offered Spirit $30 per share in a hostile takeover bid after previously offering $33 per share. The $33 per share offer was equivalent to $3.6 billion. Spirit has stated that the JetBlue acquisition “wouldn’t likely be approved by regulators.”
JetBlue’s offer is directly competing against Frontier Airlines’ (NASDAQ:ULCC) offer to acquire Spirit. Frontier is offering $2.9 billion in a cash-and-stock deal. The airline is also willing to pay Spirit a $250 million reverse break-up fee if the deal is vetoed by antitrust regulators, which it tacked on after its initial offer. SAVE stock shareholders will vote on the Frontier offer on June 10.
In response to Frontier’s break-up fee, JetBlue stated that 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.
With that in mind, let’s get into the details of the airliner drama.
JetBlue Improves SAVE Stock Offer
After Frontier added a reverse break-up fee, JetBlue increased its own reverse break-up fee to $350 million, up $150 million from its initial fee. JetBlue also believes that the chances of either itself or Frontier acquiring Spirit are “indeed similar.”
The large reverse break-up fee is a stamp of approval from both potential acquirers. It implies that that the two airlines are confident that their respective deals will not be vetoed against by antitrust regulators. Spirit will receive the fee if the acquirer backs out or if the transaction fails to complete.
Last week, proxy advisory firm Institutional Shareholder Services cautioned Spirit shareholders to vote against the Frontier offer. This was due to a lack of a reverse break-up fee. It appears that risks for a federal antitrust veto have been reduced due to the addition of the fee.
On Friday, Glass Lewis recommended Spirit shareholders to approve the Frontier offer following the addition of a reverse break-up fee.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
