What happened

On Wednesday, Spirit Airlines (SAVE -0.62%) and Frontier Group Holdings (ULCC -1.42%) terminated their planned $2.9 billion merger agreement in the face of significant Spirit shareholder objections. The termination sets the stage for Spirit to possibly sell itself to JetBlue Airways (JBLU 0.94%) at a higher price.

Spirit shares reacted by soaring higher, up as much as 5% in Wednesday trading.

So what

On Wednesday, after multiple postponements, Spirit shareholders finally had their say on the company's planned deal with Frontier. They decided to hold out for something better.

Spirit and Frontier first agreed to combine in a cash and stock deal back in February, but JetBlue countered with a rival, higher offer soon after. The two sides have been engaged in a battle for control of Spirit in the months since, with both JetBlue and Frontier altering their terms to try to win Spirit over.

Frontier's final offer included payment of $4.13 in cash along with 1.9126 of Frontier shares for each share of Spirit, for a total consideration of about $25.79 per Spirit share, based on current market prices. JetBlue's offer is $33.50 per share in cash. Both Frontier and JetBlue have offered to pay breakup fees if their deals did not win regulatory approval.

Spirit's board concluded that, although Frontier is offering less, the JetBlue deal carries more regulatory risk, and therefore, the Frontier offer is superior. But shareholders remained unconvinced. 

Spirit and Frontier announced after markets closed Wednesday that they were terminating their agreement, which presumably means Spirit didn't have the votes to get the deal over the line.

Now what

The termination opens up a lot of uncertainty about what happens now for Spirit. It's been in negotiations with JetBlue, and investors are hoping that with Frontier walking away, the path will be cleared for JetBlue and Spirit to announce a transaction at that higher price. Of course, it's possible that Spirit and JetBlue fail to reach an agreement, which could send shares of Spirit tumbling.

Frontier could also return with an offer that matches or tops the JetBlue bid. However, the airline has had all spring to do that and so far has decided against it.

Spirit shares are up on the prospects of the higher-priced deal moving forward, but still trade well below the $33.50 offer price. Investors seemingly have concluded that this is far from over, and there's still real uncertainty about whether JetBlue can get its deal over the finish line. Given everything we know, that caution seems warranted.