Frontier Airlines (ULCC) has launched another bid for struggling rival Spirit Airlines (SAVEQ), which is currently trying to exit bankruptcy, saying a combination would succeed better than Spirit’s standalone restructuring.
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The pair attempted to merge in 2022, but the plan was scuppered by an offer from JetBlue Airways (JBLU). A federal judge however blocked JBLU’s bid for SAVEQ, which then filed for Chapter 11 bankruptcy protection last November.
Now Frontier has jumped in just ahead of Spirit’s exit from Chapter 11, arguing that the carrier’s standalone plan will “result in an unprofitable airline with a high debt load and limited likelihood of success.”
But Spirit has rebuffed the offer, according to regulatory filings from the two companies released today, with the low-cost carrier arguing that it was worse than what the two companies had discussed last year.
Following discussions this month, Spirit CEO Ted Christie and Chairman Mac Gardner told Frontier on January 11th that they would not proceed, questioning the timing of the proposal and saying it was “far short” of what bondholders might support.
Plans discussed last year involved Spirit bondholders securing 26.5% of the combined entity and $580 million in take-back debt. But the latest terms had reduced this to 19% of equity and $400 million in debt.
Christie and Gardner said they “share the view on the logic of a combination” but warned that they would need to “move very quickly” to get a deal done.
Frontier Hits Turbulence
In a statement today, January 29th, Frontier said that since making the offer it has held discussions with members of Spirit’s board of directors and management team.
Bill Franke, Chair of Frontier’s Board of Directors, said the proposal was “a compelling opportunity that will result in more value than Spirit’s standalone plan by creating a stronger low fare airline with the long-term viability to compete more effectively and enter new markets at scale.”
An email dated January 28th from Frankle said Frontier had not received a specific counterproposal from Spirit but “stand ready to negotiate.”
However, Christie and Gardner rejected the deal, telling Frontier in a letter dated the same day that the terms on offer were “inadequate and unactionable.”
In the statement dated January 29th, Frankle said Frontier was still hopeful that the two could “promptly” reach agreement on a transaction.
Frontier-Spirit Could Have More Time
Nevertheless, there could perhaps yet be time for a deal. SAVEQ recently delayed a planned equity placement that is a key stage of its exit from bankruptcy, potentially buying more time to conclude a transaction.
In a regulatory filing dated January 21st, the company said it was extending by two weeks the deadline for taking part in the $350 million equity placement.
The deadline, initially set for January 31st, was extended to February 13th, with the possibility of further extensions, the company said in an 8-K filing with the Securities and Exchange Commission.
Is SAVEQ a Good Stock to Buy?
Overall, Wall Street has a Strong Sell consensus rating on the stock, based on three Sells. The average SAVEQ price target of $0.50 still however implies upside of 13% from the current level.
