Frontier Airlines sweetens offer for Spirit merger as shareholder vote looms

Frontier Airlines sweetened its offer to combine with fellow budget carrier Spirit, less than a week before Spirit shareholders are set to vote on the deal Thursday.

The new offer for $4.13 per share, $2 per share higher than Frontier’s original cash-and-stock bid, comes after JetBlue Airways repeatedly upped its own offer to buy Spirit outright in an all-cash deal.

The battle for Miramar, Florida-based Spirit has heated up in recent weeks. JetBlue has argued that its deal would help it better compete against large carriers and expand quickly at a time when new planes and pilots are in short supply.

JetBlue would take over Spirit, while a Frontier-Spirit combination would mean a discount behemoth in the U.S. Either transaction would create the country’s fifth-largest airline.

The new offer from Frontier, which was announced late Friday, also increases a proposed reverse break-up fee by $100 million to $350 million, in the event the deal doesn’t get approved by regulators. That matches the reverse break-up fee JetBlue has offered. Frontier’s new offer includes a pre-payable amount of $2.22 to Spirit shareholders.

Spirit CEO Ted Christie told CNBC the airline’s board has evaluated JetBlue’s latest upped offer and still has doubts that regulators would approve the deal. The board, he said, still views a Frontier tie-up as “a superior transaction.”

Christie said the board had regulatory concerns about JetBlue’s Northeast Alliance with American Airlines, which allows the carriers to coordinate on flights and book passengers on each other’s planes. The Department of Justice last year sued to undo that partnership.

Spirit shareholders are set to vote on the Frontier deal on Thursday. Spirit had postponed the meeting from June 10 to continue deal talks with both carriers.

In an open letter to Spirit shareholders on Monday, Frontier called JetBlue’s offer “illusory” and that it “lacks any realistic likelihood of obtaining regulatory approval.”

JetBlue has said each proposal would face regulatory scrutiny. On Friday, that New York-based airline said: “We will more thoroughly review and assess the revised terms of the Frontier-Spirit merger agreement, and we intend to continue our ‘vote no’ campaign against the inferior Frontier transaction at the special meeting.”

Over the weekend, proxy advisory firm ISS said it recommends the Spirit-Frontier deal, changing its earlier position.

“On balance, support for the merger with Frontier on the revised terms is warranted,” ISS said. Another proxy advisory firm, Glass Lewis, had previously recommended the Spirit-Frontier deal.

Spirit shares fell nearly 8% on Monday, while Frontier’s lost more than 11%. JetBlue’s added 1.6%.

Leslie Josephs www.cnbc.com