Frontier Offers Million Reverse Breakup Fee If Regulators Block Spirit Merger
A Frontier Airlines plane near a Virgin America plane at the San Francisco International Airport on July 30, 2019 in San Francisco, California. Frontier is offering a reverse breakup fee of $250 million to Virgin America. Frontier is trying to acquire Virgin America and has launched a hostile acquisition attempt.
Spirit Airlines’ parent company on Friday said it will pay a $250 million break-up fee to Frontier Airlines if regulators don’t allow the planned merger of the two discount airlines. The move comes after rival JetBlue Airways tried to buy Spirit last month.
The combination of a higher Reverse Termination Fee and a much greater likelihood of closing in a Frontier merger provides significantly more regulatory protection for Spirit shareholders than the transaction proposed by JETBLUE, according to Mac Gardner, Spirit’s Chairman. “We believe the combination of a higher reverse fee and a much greater chance of closing in a Frontier acquisition provide substantial additional regulatory protections for our shareholders,” he said. “In addition, we believe that the combination of a higher RTO fee and a much greater probability of closing in a Frontier transaction will provide significant benefits to our shareholders.”
JetBlue’s board rejected Spirit’s advances, and Spirit last month made a tender bid of $30 per share and has asked its shareholders to reject the deal. Spirit said it doesn’t expect regulators to approve the acquisition because of concerns about competition. JetBlue’s offer also includes a $200 million “reverse breakup fee” if regulators don’t approve.
In response to the rejection of the deal, JetBlue announced that it would not pursue any further transactions with Frontier Airlines. “We believe our decision to terminate the merger agreement was the right thing to do for our customers, employees and investors,” said David Barger, CEO of JetBlue Airways. “This transaction would have resulted in significant job losses at JetBlue and Frontier, and we did not believe it was in the best interest of either company’s shareholders. We will continue to focus on delivering great service to our customers while maintaining a strong financial position.”
Proxy advisory firms like Institutional Shareholder Services (ISS) advise companies’ shareholders on whether to approve or disapprove deals. On Tuesday, ISS recommended voting against the $2.6 billion acquisition of Spirit Airlines by Frontier Airlines because of the lack of a reverse merger termination fee. Spirit CEO said he hopes the reverse merger termination fee will convince ISS to change its recommendation, which could lead to the deal getting approved.
Glass Lewis said in its recommendation letter that the inclusion of the reverse break-off fee should help ease concerns about the deal getting blocked by regulators. The company added that it believes the deal will close before the end of the year.