On February 7th, Spirit Airlines and Frontier Group Holdings have announced a definitive merger agreement under which the companies will combine, creating America’s most competitive ultra-low fare airline. The merger is expected to close in the second half of 2022.
Together, Frontier and Spirit expect to change the industry for the benefit of consumers, bringing more ultra-low fares to more travellers in more destinations across the United States, Latin America and the Caribbean, including major cities as well as underserved communities. The stronger financial profile of the combined company will empower it to accelerate investment in innovation and growth and compete even more aggressively, especially against the dominant “Big Four” airlines, among others.
Frontier and Spirit will be America’s Greenest Airline, providing nationwide access to sustainable and affordable air travel. The combined airline will have the youngest, most modern and fuel-efficient fleet in the United States, featuring the largest fleet of A320neo family aircraft of any airline in the country. The combined airline is expected to achieve over 105 seat miles per gallon by 2025.
Under the terms of the merger agreement, which has been unanimously approved by the boards of directors of both companies, Spirit equity holders will receive 1.9126 shares of Frontier plus $2.13 in cash for each existing Spirit share they own. This implies a value of $25.83 per Spirit share at Frontier’s closing stock price of $12.39 on February 4, 2022, representing a premium of 19% over the February 4, 2022, closing price of Spirit, and a 26% premium based on the 30 trading-day volume-weighted average prices of Frontier and Spirit. The transaction values Spirit at a fully diluted equity value of $2.9 billion, and a transaction value of $6.6 billion when accounting for the assumption of net debt and operating lease liabilities.
Upon closing of the transaction, existing Frontier equity holders will own approximately 51.5% and existing Spirit equity holders will own approximately 48.5% of the combined airline, on a fully diluted basis, providing both Frontier and Spirit equity holders with substantial upside potential. The Board of Directors for the new airline will be comprised of 12 directors (including the CEO), seven of whom will be named by Frontier and five of whom will be named by Spirit. Mr. Franke will be Chairman of the Board of the combined company.
The merger is expected to close in the second half of 2022, subject to satisfaction of customary closing conditions, including completion of the regulatory review process and approval by Spirit stockholders. Frontier’s controlling stockholder has approved the transaction and related issuance of shares of Frontier common stock upon signing of the merger agreement. The combined company’s management team, branding and headquarters will be determined by a committee led by Mr. Franke prior to close.
The combined airline is expected to:
· Deliver $1 billion in annual consumer savings.
· Offer more than 1,000 daily flights to over 145 destinations in 19 countries, across complementary networks.
· Expand with more than 350 aircraft on order to deliver more ultra-low fares.
· Increase access to ultra-low fares by adding new routes to underserved communities across the United States, Latin America and the Caribbean.
· Deliver even more reliable service through a variety of operational efficiencies.
· Expand frequent flyer and membership offerings.
· By 2026 Spirit and Frontier expect to add 10,000 direct jobs and thousands of additional jobs at the companies’ business partners.
· Given the growth of the combined company, it is expected that all current team members will have an opportunity to be a part of the combined airline.
· Team Members of the combined airline will have better career opportunities and more stability as part of the most competitive ultra-low fare airline in the United States.