Spirit Airlines Stock: Vote For $33.50 Over $24 (NYSE:SAVE)

Spirit Airlines Airbus A320.

DaveAlan/iStock Unreleased via Getty Images

Merger arbitrage

I like merger arb. I love merger arb targets with multiple bidders. The “winner” in competitive situations tend to overpay. I hate overpaying, but I’m more than willing to get overpaid. Here is one place where you might get a bit more than you deserve based on fundamental value.

Who?

Spirit Airlines (NYSE:SAVE) is an ultra-low cost airline, a human cattle car. Investing needs to serve some higher purpose and the purpose of owning Spirit is never, ever having to fly it.

What?

No one should want to fly in Spirit’s flying Greyhounds, but everyone wants to buy Spirit. They have a deal to sell to Frontier (ULCC) for 1.9126 shares and $4.13 in cash. That deal is currently worth about $23.93 per SAVE share. JetBlue (JBLU) offered $30, bumped to $31.50, then $33.50.

When?

Both deals have substantial timing and deal risk due to their antitrust issues, but we’ll know a lot more about which way this is going by year-end.

Where?

Spirit Airlines is headquartered in Miramar, Florida, serving 85 destinations in 16 countries in Latin America, the Caribbean, and the US.

Why?

Shareholders should support a sale to the highest bidder, which is currently JetBlue. The current deal with Frontier requires approvals including HSR, FAA/DOT, DHS, and the target shareholders. The buyer has already secured buyer shareholder approval with 82.4% already supporting it by written consent. Spirit holders have our vote on Thursday, June 30, 2022 at 9 AM. We should vote it down because the $24ish deal is less than the $33.50 offer. Both deals will – and should – trade at a big discount driven by their antitrust risk but voting down the inferior Frontier deal is worth about $5 per share to Spirit shareholders. Easy decision. To make it even easier, the current Frontier deal is worth less than the current Spirit share price.

I generally dislike corporate jargon but have been consistently impressed by JetBlue’s communication throughout this process, both publicly and directly:

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JBLU

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JBLU

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JBLU

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JBLU

Caveat

Both deals need antitrust approval from an administration with fanatical antitrust enforcers likely to bring suits against either one. The short-term is promising if it resolves in favor of the high bid. The long-term is promising because a judge is likely to side with the deal. But the medium-term is a bit puckery as we await a possible antitrust suit.

Conclusion

It is a good time to own arb spreads. Multi-bidder situations are even more enticing. Someone will probably buy the target and they’re likely to overpay. Today’s best multi-bidder opportunity is Spirit.

TL; DR

Buy SAVE.

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