Merger Arbitrage Mondays - The Bidding War For Spirit Airlines (SAVE) Continues

After twelve new deals were announced during the prior two weeks, merger activity ground to a halt last week with no new deals announced. Oracle completed its massive $24.3 billion deal for healthcare software company Cerner and in a trend we have been seeing for several weeks, yet another SPAC business combination fell apart. There was plenty of activity in current deals that are yet to consummated, including Thoma Bravo negotiating a slightly lower price (a 3.41% cut) for Anaplan (PLAN), additional saber rattling between Elon Musk and Twitter (TWTR) where the company agreed to give Mr. Musk unrestricted access to its data through its "firehose" API and JetBlue (JBLU) sweeting its offer for Spirit (SAVE).

Editor's Note: Starting next month, we will be rolling the Merger Arbitrage Mondays series into our paid subscription services, Inside Arbitrage Plus and Inside Arbitrage Premium. The more affordable Plus service focuses on content including a monthly special situations newsletter, a model portfolio and mid-month updates. The Premium service includes both content and a plethora of tools including our popular Merger Arbitrage Tool and various custom screeners like the Spinsider and The Double Dipper. You can sign up for these services here.

The Battle for Spirit Airlines SAVE

We wrote the following in our Merger Arbitrage post regarding Frontier Group's (ULCC) acquisition of Spirit Airlines (SAVE).

On February 7, 2022, Frontier Group Holdings (ULCC) announced that it is acquiring Spirit Airlines (SAVE) for $6.6 billion in a cash plus stock deal, representing a premium of of 19% over the February 4 closing price of Spirit, and a 26% premium based on the 30 trading-day volume-weighted average prices of Frontier and Spirit. Bill Franke, Chairman of Frontier Airlines has been the visionary behind this deal for over a decade. He was the Chairman of Spirit Airlines from 2006 to 2013. Bill Franke was involved in the IPOs of both Spirit and Frontier through Indigo Partners, a private equity firm that was co-founded by him.

Headquartered in Mirama, Florida, Spirit Airlines is a low-cost carrier that is known for its low ticket prices and for charging fees for other amenities like carry-ons, water, and even for printing a boarding pass. Spirit’s merger with Frontier would create a big player in the low-budget airfare market. The deal is currently trading at a spread of 7% or an annualized return of 8% assuming the deal closes by the end of the year.

The deal has been on a roller coaster ride since it was announced. Here is a timeline of all the events since announcement:

• On February 8, 2022, a day after the deal was announced, Reuters reported that lawyers from the U.S. Justice Department say that Spirit and Frontier's merger to create the fifth-largest airline in the country would face close scrutiny.
• On March 10, 2022, legislators including Sen. Elizabeth Warren, Bernie Sanders and Rep. Alexandria Ocasio-Cortez asked the Department of Justice to investigate Frontier Airlines (ULCC) planned purchase of Spirit Airlines (SAVE) to see if would hurt competition.
• On April 5, 2022, Spirit Airlines (SAVE) received an unsolicited proposal from JetBlue Airways (JBLU) to acquire all of the outstanding shares of Spirit's common stock in an all-cash transaction for $33.00 per share.
• On April 7, 2022, the Board of Directors of Spirit Airlines (SAVE) determined that the unsolicited proposal received from JetBlue Airways (JBLU) could reasonably be likely to lead to a “Superior Proposal”.
• On April 13, 2022, Spirit (SAVE) received a request for additional information from the U.S. Department of Justice (DOJ) with respect to its proposed merger with Frontier (ULCC).
• On May 2, 2022, the Board of Directors of Spirit Airlines (SAVE) unanimously determined that the unsolicited proposal received from JetBlue Airways (JBLU) does not constitute a 'Superior Proposal' as defined in Spirit's merger agreement with Frontier Group Holdings (ULCC).
• On May 11, 2022, Spirit Airlines (SAVE) announced that it will hold a shareholder meeting on June 10 for a vote on its proposed merger with Frontier Group Holdings (ULCC).
• On May 16, 2022, JetBlue Airways Corporation (JBLU) made a hostile offer to purchase all of the outstanding shares of Spirit Airlines (SAVE), at $30.00 per share.
• On May 19, 2022, Spirit Airlines (SAVE) announced that its Board of Directors, after consultation with its outside financial and legal advisors, has unanimously determined that the unsolicited tender offer from JetBlue Airways Corporation (JBLU) to acquire all outstanding shares of Spirit’s common stock for $30 per share in cash is NOT in the best interests of Spirit and its stockholders.
• On May 23, 2022, Spirit Airlines (SAVE) announced that it will host a conference call for analysts to discuss the Spirit Board of Directors’ decision to reject the unsolicited tender offer from JetBlue Airways Corporation (JBLU) and its recommendation that stockholders vote FOR the merger with Frontier Airlines (ULCC).
• On May 31, 2022, Spirit Airlines (SAVE) disagreed with Institutional Shareholder Services' recommendation regarding the company's definitive merger agreement with Frontier Group Holdings (ULCC).
• On June 2, 2022, Spirit Airlines (SAVE) and Frontier Group Holdings (ULCC) announced an amendment to their previously announced merger agreement. Under the terms of the amended merger agreement, Frontier would pay a reverse termination fee of $250 million, or $2.23 per share, to Spirit in the unlikely event the combination is not consummated for antitrust reasons.
• On June 3, 2022, shareholder advisory firm Glass Lewis recommended Spirit Airlines (SAVE) investors approve Frontier Group Holdings's (ULCC) takeover bid, saying it was the "best available" at this time.
• On June 6, 2022, JetBlue (JBLU) announced that it has submitted an improved proposal to the Board of Directors of Spirit (SAVE). The proposal includes an enhanced reverse break-up fee of $350 million. Spirit stockholders will receive an aggregate consideration of $31.50 per share in cash, comprised of $30 per share in cash at the closing of the transaction and the prepayment of $1.50 per share of the reverse break-up fee.
• On June 8, 2022, Spirit Airlines (SAVE) announced that it has postponed its Special Meeting of Stockholders relating to the proposed merger agreement with Frontier Group Holdings (ULCC) until June 30, 2022.

The current spread on the deal is -5.28%, reflecting the sweetened offer from JetBlue.

 

You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) that automatically updates itself during market hours.

Deals In The Works

There were two new deals announced in the Deals in the Works section last week.

SPAC Arbitrage

There was one new SPAC IPO filed and one new SPAC combination announced last week. You can find the new SPAC IPO announcements in our SPACs tool here.

• On June 10, 2022, Blue Nile and Mudrick Capital Acquisition Corporation II (MUDS) entered into a definitive agreement for a business combination that will result in Blue Nile becoming a public company. Founded in 1999 as an online jeweler, Blue Nile was taken private by Bain Capital in a deal valued at $500 million in 2017. This new SPAC business combination is expected to generate $450 million of capital and the transaction implies an enterprise value for Blue Nile of approximately $683 million, making this a less than optimal exit for Bain.

Terminated

• On June 9, 2022, Eleusis and Silver Spike Acquisition Corp. II (SPKB) announced that they have mutually agreed to terminate their previously announced agreement and plan of merger.

Weekly Spread Changes:

The table below shows weekly spread changes between June 3 and June 10, 2022.

Symbol Quote Acquiring Company Acquiring Company Quote Current Spread Last Week Spread Spread Change Weekly Deal Type VG 18.31 Ericsson (ERIC) 7.53 14.69% 8.25% 6.44% All Cash HLG 13.5 Hailiang Education International Limited (N/A)   6.00% 0.14% 5.86% All Cash AUY 5.65 Gold Fields Limited (GFI) 10.19 8.21% 2.46% 5.75% All Stock VMW 125.41 Broadcom Inc. (AVGO) 541.27 13.63% 7.96% 5.67% Special Conditions BKI 66.51 Intercontinental Exchange, Inc. (ICE) 97.78 27.80% 22.20% 5.60% Special Conditions PTRS 9 OceanFirst Financial Corp. (OCFC) 19.13 -4.09% -2.39% -1.70% All Stock SUMR 11.54 Kids2, Inc. (N/A) 0.00 3.99% 5.82% -1.83% All Cash RDBX 13.2 Chicken Soup for the Soul Entertainment, Inc. (CSSE) 8.76 -94.23% -91.22% -3.01% All Stock PCSB 19.07 Brookline Bancorp, Inc. (BRKL) 13.39 -6.73% -3.33% -3.40% All Stock SAVE 22.28 Frontier Group Holdings, Inc. (ULCC) 9.92 -5.28% 0.74% -6.02% Cash Plus Stock

Deal Statistics:

Total Number of Deals Closed in 2022 80 Total Number of Deals Not Completed in 2022 4 Total Number of Pending Deals Cash Deals 57 Stock Deals 15 Stock & Cash Deals 8 Special Conditions 8 Total Number of Pending Deals 88 Aggregate Deal Consideration $933.26 billion

Deal Updates:

• On June 6, 2022, JetBlue (JBLU) announced that it has submitted an improved proposal to the Board of Directors of Spirit (SAVE). The proposal includes an enhanced reverse break-up fee of $350 million. Spirit stockholders will receive an aggregate consideration of $31.50 per share in cash, comprised of $30 per share in cash at the closing of the transaction and the prepayment of $1.50 per share of the reverse break-up fee.
• On June 6, 2022, Anaplan (PLAN) and Thoma Bravo amended the terms of their previously announced transaction, pursuant to which Anaplan will be acquired by Thoma Bravo. Under the terms of the amended merger agreement Anaplan stockholders will receive $63.75 per share in cash, instead of the original purchase price of $66.00 per share in cash.
• On June 6, 2022, Elon Musk said that Twitter (TWTR) has "materially breached" its obligations under the merger agreement due to Musk's requests for more information about spam accounts.
• On June 7, 2022, Preferred Apartment Communities (APTS) announced that it adjourned the Special Meeting of Stockholders until June 17, 2022.
• On June 7, 2022, Tenneco (TEN) announced that its shareholders voted to approve Tenneco's pending acquisition by affiliates of Apollo Global Management.
• On June 8, 2022, Spirit Airlines (SAVE) announced that it postponed its Special Meeting of Stockholders relating to the proposed merger agreement with Frontier Group Holdings (ULCC) until June 30, 2022.
• On June 8, 2022, Renewable Energy Group (REGI) won European Commission approval for its planned sale to Chevron (CVX).
• On June 8, 2022, Edenbrook Capital, one of the largest public shareholders of Hemisphere Media Group (HMTV), sent a letter to the company's Group Special Committee, stating that HMTV should be taken private for at least $16-$23/share.
• On June 9, 2022, Alleghany Corporation (Y) announced that its stockholders voted to approve and adopt the Agreement and Plan of Merger, pursuant to which Alleghany will be acquired by Berkshire Hathaway (BRK.A, BRK.B).
• June 9, 2022: According to Reuters, Canada's anti-trust regulator wants to speed up its case against Rogers Communications (RCI) purchase of Shaw Communications (SJR) with a process that would schedule a dispute hearing in five to six months.
• On June 10, 2022, LHC Group (LHCG) and UnitedHealth Group each received a request for additional information and documentary materials from the FTC in connection with the FTC’s review of the Merger.

Closed Deals:

• The acquisition of Cerner Corporation (CERN) by Oracle Corporation (ORCL) on June 8, 2022. It took 170 days for this deal to be completed.

Top 10 deals with largest spreads:

Please do your own due diligence on deals with large spreads. Some of these large spreads might be related to regulatory issues or because of the way the deal is structured. We classify some of these deals as "special situation" deals in our merger arbitrage tool and provide additional details to help with the analysis. There may be unique situations related to special dividends, spinoffs, proration, etc. that need to be accounted for when looking at these spreads.

Symbol Announced Date Acquiring Company Closing Price Last Price Closing Date Profit Annualized Profit TWTR 04/25/2022 Elon Musk (N/A) $54.20 $38.98 12/31/2022 39.05% 70.55% BKI 05/04/2022 Intercontinental Exchange, Inc. (ICE) $85.00 $66.51 06/30/2023 27.80% 26.49% ATVI 01/18/2022 Microsoft Corporation (MSFT) $95.00 $76.48 06/30/2023 24.22% 23.08% TEN 02/23/2022 Apollo Global Management, Inc. (APO) $20.00 $16.6 12/31/2022 20.48% 37.01% BLCT 04/30/2022 Multelements Limited (N/A) $1.60 $1.34 12/31/2022 19.40% 35.06% SIMO 05/05/2022 MaxLinear, Inc. (MXL) $108.67 $91.04 06/30/2023 19.37% 18.46% CHNG 01/06/2021 UnitedHealth Group Incorporated (UNH) $27.75 $23.38 12/31/2022 18.69% 33.77% SJR 03/15/2021 Rogers Communications Inc. (RCI) $32.40 $27.64 06/30/2022 17.22% 349.21% NLSN 03/29/2022 Evergreen Coast Capital Corporation (N/A) $28.00 $24.4 12/31/2022 14.75% 26.66% TGNA 02/22/2022 Standard General L.P. (N/A) $24.00 $20.92 12/31/2022 14.72% 26.60%

Conclusion:

There were no new deals announced last week but multiple deals faced hurdles and went through amendments. Elon Must accused Twitter (TWTR) for materially breaching its obligations under the merger agreement, Anaplan (PLAN) and Thoma Bravo amended their merger agreement, LHC Group (LHCG) and UnitedHealth Group received a request for additional information from the FTC, and Rogers Communications (RCI) and Shaw Communications (SJR) continue to face challenges from Canada's anti-trust regulator.

Disclaimer: I have long positions in Biohaven Pharmaceutical (BHVN), Twitter (TWTR), First Horizon (FHN), Tower Semiconductor (TSEM), Healthcare Trust of America (HTA), TEGNA (TGNA) and Bluerock Residential Growth REIT (BRG). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.