Since the day it was announced, Spirit’s board has been 100 percent behind its merger deal with Frontier. Even when JetBlue entered with a bid of its own, it seemed like the Frontier deal would not be stopped. Now, it’s looking less and less likely every day.
Last week, Spirit postponed the shareholder vote on the Frontier merger for the third time. The original vote was scheduled on June 10, but it was delayed until June 28 and then July 8 before this latest postponement to July 15. What’s behind the delays? There is only one possible reason.
While Spirit’s board has been fully behind the Frontier merger since the beginning, what they want doesn’t matter in the end. It’s all about what the shareholders want to do. And so far, shareholders appear to be tellng Spirit that they want something else.
Shareholdings in Spirit are largely consolidated with big instituational investors. At the top you have Vanguard with more than 9 percent of the company followed by BlackRock with 5.73 percent. The top 10 owners control just shy of 40 percent of the airline’s stock. Another 19 percent is owned by top mutual funds.
In other words, this isn’t about going out to Ma and Pa with a flyer and convincing them with a broad campaign that this is the right thing to do. This is all about making sure that those handful of companies that control the fate of the company are behind you as a board, and that is clearly not the case today. If it were, the vote would have been held and the deal would be done. Instead, Spirit must not be able to get the votes it needs, so it keeps postponing and postponing and postpoing, hoping something will change.
In the earlier postponements, there was some sense behind this. Spirit has been able to go back to Frontier to get a sweetened deal as JetBlue continued to push higher and higher with its own proposals. Shareholders will appreciate that kind of delay since it’s short and means more money in their pockets.
But at some point, this becomes a weird game where Spirit’s board proverbially holds its breath until it gets its way. The problem is, the shareholders don’t care if the board suffocates, at least not as much as they care about getting the best return on their investment.
With this latest delay, is there actually a revised deal coming from Frontier? It’s been awfully quiet in the last week. Presumably that’s because JetBlue is feeling good about its chances and Frontier has been unwilling to come up more. If Frontier does, in fact, change its deal again, then this delay may have been worthwhile. If not, then it feels like a desperate attempt by Spirit to hope the winds will shift.
Maybe Frontier is just waiting until closer to the vote so JetBlue will have less time to come back with another increased offer of its own. Or maybe Spirit is deep in negotiations with Frontier to try to get it to come up since it obviously so greatly prefers that deal. Either way, if no changes come out this week, then it would seem the vote would have to be held even if it means a rejection of the Frontier deal.
If that deal is shot down, then what? The merger agreement with Frontier does include a $94.2 million break-up fee. Spirit would not answer questions about whether this would have to be paid due to a shareholder vote against the deal. A look at the merger agreement would suggest that it does not get paid out in that event… but… if Spirit enters into an agreement to be acquired by another company within 12 months, then I believe it would have to be paid. That, however, is not guaranteed to happen.
A “no” vote on the Frontier deal, after all, does not mean that a JetBlue deal is done. Spirit could just decide to stick it out on its own, try to keep its head down, do good work, and then hope for a strong increase in its share price so that it can get a better deal from someone down the line. Or it could give in to pressure and agree to be acquired by JetBlue. Ultimately it will probably depend upon those top shareholders to decide in which direction the company gets pushed.
For now, however, we all just wait… and wait… and wait. Every time the vote gets delayed, the board seems to lose some credibility. But as long as ever-increasing offers continue to roll in, no shareholder is going to complain. Frontier has already come up more than I would guessed, but it’s hard to imagine there being much more room to increase here.
Does that mean we will finally see a vote this week? Your guess is as good as mine. I’ve given up trying to guess at this point. But I sure hope this saga ends soon.
