Frontier Group (NASDAQ:ULCC) just increased the cash portion of its offer to buy out fellow discount carrier Spirit Airlines (NYSE:SAVE). This makes Frontier’s bid more competitive with JetBlue Airways’ (NASDAQ:JBLU) prior offer. This is starting to look like a bidding war — yet, SAVE stock plunged upon the disclosure of Frontier’s revised bid.
Earlier this month, JetBlue revised its buyout bid so that Spirit’s shareholders, if the deal went through, would receive $31.50 per share in cash. Consequently, JetBlue’s offer would be worth a whopping $3.4 billion. Not only that, but JetBlue added $150 million to its proposed reverse breakup fee, making it $350 million. That money would be payable to Spirit Airlines’ shareholders if the deal were to fall through due to antitrust issues.
It was a clear case of one-upmanship. Frontier had previously proposed to pay a breakup fee of $250 million. Now, it’s evident that Frontier is ready to match or even exceed JetBlue’s offer. In fact, Frontier added $2 per share in its latest bid, so that the new offer is for $4.13 per share. Plus, Frontier upped its proposed reverse breakup fee by $100 million to $350 million, thereby matching JetBlue.
What’s Happening With SAVE Stock?
As you can see, the apparent bidding war is really heating up. The situation could reach a tipping point this week, as Spirit’s shareholders are set to vote on the proposed deal with Frontier Group on Thursday.
The competition isn’t just heated, though — it’s starting to get acrimonious. A recently issued letter to Spirit’s shareholders from Frontier called JetBlue’s offer “illusory.” The letter also alleged that JetBlue’s proposal “lacks any realistic likelihood of obtaining regulatory approval.”
Perhaps Wall Street is expressing its disapproval of Frontier’s harsh tone on Monday. By 10:15 a.m. EST, Frontier shares were already down 10%. Interestingly, though, SAVE stock was also down sharply. On heavy trading volume, Spirit Airlines shares fell 8% that morning.
This is happening even after proxy advisory firm ISS had recommended the Frontier-Spirit deal over the weekend. “On balance, support for the merger with Frontier on the revised terms is warranted,” ISS reassured.
It’s possible that SAVE stock could rebound when the dust settles. For the time being, though, the proposed takeover bids are still up in the air and apparently, some traders aren’t too happy about it.
On the date of publication, David Moadel did not have (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.
