Spirit Airlines’s shares fall as proxy adviser recommends deal

In the final days of the shareholder vote, Spirit Airlines Inc. will get new support from a proxy adviser to take a deal over a higher bid from JetBlue Airways Corp., according to a sweetened offer from suitor Frontier Group Holdings Inc.

Spirit's shares fell more than 7% on Monday as the prospects for the lower of the two proposals improved.

Frontier has increased the cash portion of its offer to $4.13 a share - up about $2 from its original bid - along with 1.9126 of its stock for each Spirit share. The airline was valued at about $2.6 billion as of Friday's closing price, more than $1 billion less than JetBlue's all-cash offer.

The revised bid has ratcheted up tension in the ongoing takeover battle ahead of a Thursday vote in which Spirit shareholders will decide whether to stick with the deal first reached in February for a Frontier takeover. Both rivals are looking for growth and competitive strength that would come with a Spirit acquisition. JetBlue stated on Monday that it was considering its options and that it is committed to acquiring Spirit.

Frontier Chief Executive Officer Barry Biffle said in an interview Monday that we are always concerned about a vote until it's done. That is why we increased our offer in order to make sure we got a successful outcome. In a subsequent interview on Bloomberg Television, Biffle said he felt confident about the vote.

The shares of Spirit, whose board still supports the Frontier offer, fell 7.3% to $22.74 as of 11: 45 a.m. in New York trading. Frontier fell 9.4% and JetBlue rose 1.6%.

In an open letter to Spirit shareholders on Monday, Frontier s board said merger-related synergies will boost the long-term value of their proposal, making it far superior to what JetBlue offers. The revised bid won the backing of Institutional Shareholder Services Inc., which changed course and recommended shareholders vote for that deal. In a report, the proxy adviser said that investors had benefited from the bidding war between Frontier and JetBlue. ISS previously said investors would be better off rejecting the deal, but now prefers Frontier because the revisions match JetBlue's prepayment plan and protections in case of regulatory failure.

Biffle said that the proxy adviser's change of opinion is pretty much sealing the deal in terms of us having the most compelling offer.

The recommendation comes despite a substantially higher and all-cash offer from JetBlue, which said last week it was willing to pay $33.50 a share in a deal valued at $3.7 billion, along with various protections to make sure the transaction gets done. Acquiring Spirit would give JetBlue rapid growth that would make it a stronger competitor to the four-largest US carriers.

The big deal here is that JetBlue has come in all-cash, they have come in with breakage fees, and if you take the Frontier offer, you are basically waiting for synergies for a combined company, a couple years out, said George Ferguson, a Bloomberg Intelligence analyst. He said that the Frontier proposal may make it less attractive for institutional asset managers.

Frontier is trying to preserve an agreement that would create the largest deep-discount airline in the US, with a clear path to pick up Spirit's most price sensitive customers and without a bigger rival to hinder expansion. Such discounters charge bare-bones ticket prices and then charge fees for anything extra like water or paper boarding passes. It would become the country's fifth-largest carrier based on domestic passenger traffic.

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