Spirit Airlines (SAVE 2.61%) has again delayed a shareholder vote on its proposed merger with Frontier Group Holdings (ULCC 0.21%), providing investors with hope that a higher offer from JetBlue Airways (JBLU 0.88%) is still under consideration. Investors reacted by sending shares of Spirit up as much as 5% in Friday trading.
Spirit and Frontier announced plans to combine in February, in what seemed at the time a routine deal between two discount airlines. But JetBlue entered the fray a few months later with an all-cash offer that remains significantly higher than what Frontier had agreed to pay, setting off a bidding war for Spirit.
So far, Spirit's board has remained committed to the Frontier deal, arguing that despite the higher price, JetBlue's offer involves a lot more regulatory risk and could be hard to get over the finish line. Spirit had originally planned to seek shareholder approval for the Frontier deal last month, but has now postponed the meeting three times.
The most recent postponement occurred last night. Spirit issued a statement saying it intended to adjourn the shareholder meeting scheduled for Friday morning, with plans to reconvene on July 15. That gives the parties another week for negotiations.
It is hard to know exactly what is going on right now, and specifically whether Spirit's board is considering the JetBlue offer or simply concerned it doesn't yet have the votes to get the Frontier deal over the line. Either way, it does open the possibility for a higher price, and investors are reacting positively to the development.
It certainly seems that JetBlue might be in a position to secure a deal, which would mean a 40% higher payout to Spirit investors at close. But investors should be warned that Spirit's board was likely correct in determining that a JetBlue/Spirit merger will likely face a tougher regulatory review, and the full payout would still be a long way away.
Spirit today trades well below the $33.50-per-share JetBlue offer, but is gradually rising as the negotiations play out. Given what we know, and what we don't know, the cautious optimism makes sense.