In an announcement made on Thursday, Frontier Group Holdings said that in a bid to salvage its acquisition of Spirit Airlines for USD2.9 billion, it was prepared to pay a break-up fee of USD250 million. If the acquisition secures regulatory approval, it would create the fifth-largest airline in the US.
Proxy advisory firm Institutional Shareholder Service (ISS), had urged Spirit shareholders to reject the deal with Frontier, due to the fact that Spirit Airlines had failed to negotiate a break-up fee in the deal in the event that regulatory authorities decline approval. The offer from Frontier came after the ISS recommendation.
Frontier confident of regulatory approval
Frontier Chairman, William Franke said that the company was confident that regulators would approve the deal, and had therefore offered to institute a reverse termination fee.
Meanwhile, JetBlue Airways had made a hostile offer of USD3.3 billion for the takeover of Spirit, which the airline rejected, stating that it would not meet with regulatory approval unless more concessions were made by JetBlue.
JetBlue, which is the sixth largest passenger carrier in the US, made its offer directly to shareholders of Spirit by launching a tender offer last month.
In a statement made on Thursday, JetBlue said that the addition of a break-up fee by Frontier Airlines was testimony to the fact that the regulatory profiles of both the deals were similar in nature.
On June 10, Spirit shareholders are scheduled to vote on the deal with Frontier Airlines. Observers have stated that it was unclear how the new break-up fee will change the recommendation by ISS to Spirit shareholders.
The cash plus stock deal offer from Frontier had valued Spirit Airlines at USD25.83 per share when the deal was announced in February. JetBlue has made a tender offer of USD30 per share, and also mentioned that its previous offer of USD33 per share was still open to negotiation should Spirit decide to do so.
JetBlue has also offered to pay Spirit a USD200 million break-up fee if regulators block the proposed deal with Spirit Airlines.
Airlines in the US have been encouraged by the lifting of post-pandemic travel restrictions, and have raised ticket prices in an effort to stay ahead of surging fuel prices and wage inflation. Airlines however are cautious of the global economy slipping into recession with global central banks raising interest rates to curb inflation. Some airlines have stated that they may have to reduce capacity.