Spirit Airlines Inc

Spirit Airlines Inc. (NYSE: SAVE) is a commercial airline that provides passenger air transportation. The company flies to 85+ locations in 16 countries across the United States, Latin America, and the Caribbean, with a focus on leisure travelers and those visiting friends and family. It caters to budget-conscious customers who book their own flights and compete on the overall costs

Latest Updates:

• On May 16, 2022, JetBlue stated that it has filed a "Vote No" proxy statement encouraging Spirit shareholders to vote AGAINST the inferior, high-risk, and low-value Spirit/Frontier merger at Spirit's impending special meeting.
• Briefs about the updated offer of Jet Blue:
• JetBlue has launched an all-cash, fully funded tender offer to buy all of Spirit's existing shares for USD 30 per share, including all appropriate withholding taxes relative to USD 18.81 from the Frontier transaction.
• JetBlue will pay shareholders USD 30 per share in cash, which is a 60% premium over the value of the Frontier transaction as of May 13, 2022, and a 77% premium over Spirit's most recent closing price as of May 13, 2022, and a 38% premium over Spirit's unaffected share price –a higher premium than the previous original proposal.
• JetBlue is also willing to negotiate a USD 33 agreement in good faith, subject to obtaining the requisite diligence.
• Jet Blue divestment promise, and USD200 million reverse break-up fee might provide more regulatory stability.
• Effect on Frontier price after the declaration of Frontier transaction offer: Frontier's stock price has dropped 30% since the announcement of the Frontier deal, resulting in a USD 770 million fall in the value of the Frontier transaction to the shareholders as of closure 13th May 2022.
• Despite having a regulatory profile comparable to JetBlue, Frontier does not give a divestment commitment or a reverse break-up fee, resulting in fewer regulatory obligations and less confidence in the closure process.
• Expectations of the share price of Spirit Airlines under different scenarios: As per Jet Blue’s expectations, Spirit's shares will trade at around USD 17 if the transaction between Spirit Airlines and Frontier Group is authorized. If the Frontier acquisition is denied, Spirit shares are likely to trade between USD 23.1 to USD 25.58, a 36 percent premium to Spirit's most recent closing share price as of May 13, 2022, based on what has been witnessed since Jet Blue's proposal became public.
• Accusations on Spirit board by Jet Blue’s management: Bill Franke, who appointed each to the Spirit Board when he was chairman of Spirit, and when Indigo Partners (the current controlling shareholder of Frontier) was a big stakeholder of Spirit, had a considerable influence on the decision to merge with Frontier. If the Frontier acquisition is completed, 5 of the 8 Spirit directors will remain on the Frontier / Spirit merged company's board of directors.

Further key facts about the transaction

• The Frontier transaction's final terms indicated just an 18.9% premium to Spirit's share price at the time of the announcement, compared to an average premium of 86 percent in previous airline purchases.
• The final value of the Frontier acquisition was only around 6% more than the conditions that Frontier had first provided.
• The Frontier transaction's original value of USD 25.83 per share was much lower than the standalone value determined by Spirit's financial advisers using discounted cash flow analysis.
• Frontier will not commit to divestment or pay a reverse break-up cost. In the absence of both, Frontier may simply refuse to make any regulatory concessions and quit the Frontier deal at no cost, despite evident barriers to its own transaction (or compensation to Spirit or its shareholders).

Risk Associated

• Uncertainties hovering over the potential deal either with Frontier or JetBlue could bring large swings in the stock price is short-term.
• Regulatory risk associated to the JetBlue’s offer.

Conclusion

Given the hostile bid offer from JetBlue could bring sharp volatility in the SAVE stock price until June 10, 2022. If Frontier’s deal gets rejected at the special meeting of the stockholders of Spirit to be held on June 10, 2022, and JetBlue’s gets shareholder’s nod then an upside is possible in the stock. JetBlue offers more value a significant premium in cash more certainty, and more benefits for all shareholders. Frontier offers less value, more risk, no divestiture commitments, and no reverse break-up fee, despite more overlap on non-stop routes and their own regulatory challenges.

1-year technical chart as of May 16, 2022, at 07:20 AM PDT. Source: REFINITIV. Analysis by Kalkine Group.

Technical Analysis Summary

* Current price as of May 16, 2022, at 07:20 AM PDT.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.