By
Godfrey Benjamin
July 28th, 2022
The two largest discount carriers in the US have merged, Frontier Airlines has a 51.5% controlling stake in the joint venture, while Spirit holds the remaining 48.5%.
Frontier Airlines Holdings (NASDAQ: ULCC) and Spirit Airlines (NYSE: SAVE) saw spikes in their shares as the companies merged to create the fifth-largest airline in the US. Over the weekend, Frontier and Spirit agreed to merge in a deal worth $6.6 billion. In reaction to the announcement of the merger, Spirit surged over 17% while Frontier added 3.5%. At press time, Frontier Airlines is trading up 0.78% to $12.92 in extended trading hours. However, Spirit Airlines is down 0.31% to $25.38 in after-hours trading. Except for the recent jump, Frontier’s stock has been declining, losing nearly 6% since the year began. The company also slumped 25.85% in the last three months and more than 9% over the past month. In the last five days, ULCC has plunged almost 2%.
On the other hand, Spirit Airlines stock grew 16.53% in its year-to-date record and another 1.80% in the last three months. The airline added 12.16% over the past month and 18.58% in the last five days. However, SAVE has dropped 19.91% over the past year.
Frontier Airlines and Spirit Airlines Form Partnership
Now that the two largest discount carriers in the US have merged, Frontier Airlines has a 51.5% controlling stake in the joint venture, while Spirit holds the remaining 48.5%. Also, all Spirit shareholders will receive 1.9126 shares of Frontiers. In addition, the joint ventures said the investors would get $2.13 in cash for each of the shares they own. As such, Spirit shareholders will have an implied value of $25.83 per share, a 19% premium over the value of SAVE at the end of the past week.
The CEO and president of Spirit, Ted Christie, spoke on the merger with Frontier Airlines. Speaking to analysts on a call on the 7th of February, he stated:
“The transaction is centered around creating an aggressive low-fare competitor that will better serve guests, expand career opportunities for our team members and create value for our shareholders. We believe we are a perfect fit with Frontier. Our businesses share similar values, including long-standing commitment to affordable travel.”
With a successful deal, Frontier and Spirit have agreed on the chairman of the joint venture. Frontier Chairman Bill Franke will act as the chairman of the combined company. Drake said that the new partnership would create the most competitive discount airline in America. According to the chairman, an “ultra-low fare airline” will benefit American consumers.
Currently, the companies have not announced the new name or CEO of the joint business. Also, there is currently no news on where the airlines will be located. When the transaction closes in the second half of the year, a committee led by Franke will answer all pending questions.
