Frontier Airlines ULCC will pay Spirit a $250 million breakup fee if regulators block a merger

By Alison Sider WSJ

Frontier Airlines ULCC will pay Spirit SAVE Airlines Inc. a $250 million breakup fee if regulators block a merger between the two carriers, under a new agreement by the companies Thursday.

Spirit executives said Thursday that they believe the additional fee should make the decision easier for shareholders, who are scheduled to vote on the Frontier merger next week.

“The combination of a higher reverse-termination fee and a much greater likelihood to close in a Frontier merger provides substantially more regulatory protection for Spirit stockholders than the transaction proposed by JetBlue,” Spirit Chairman Mac Gardner said.

JetBlue said it would review the revised terms but believes it has put forward a superior offer and is prepared to negotiate a deal.

Spirit agreed in February to be acquired by Frontier in a cash-and-stock transaction originally valued at $2.9 billion, a deal that would combine the two discounters with similar business models.

ISS said in a report Tuesday that the Frontier deal might be somewhat easier to execute but that both face regulatory risk. The firm concluded that JetBlue’s offer was financially superior and offered more assurance should antitrust authorities reject the merger.

“Shareholders may question the board’s failure to negotiate a reverse termination fee with Frontier in light of the potential regulatory risk and JetBlue’s offer of a $200 million termination fee,” ISS wrote this week. Such a fee “would provide substantial comfort to shareholders while ultimately—if Spirit’s conviction is well placed—costing nothing to Frontier.”

Frontier Chairman William Franke said Thursday that the companies are confident regulators will find a merger between Frontier and Spirit to be beneficial.