The merger deal between Spirit Airlines Incorporated SAVE and Frontier Group Holdings Inc ULCC represents an enterprise value of $6.6 billion and is in line with the long-term historical multiple of Spirit Airlines, according to BofA Securities.
The Spirit-Frontier Analyst: Andrew Didora maintained a Buy rating for Frontier Airlines, with a price target of $18. Analyst Didora removed the rating for Spirit Airlines, saying the stock “is no longer trading on fundamentals.”
The Spirit-Frontier Thesis: The merger deal can benefit from economies of scale and can support the capacity growth plans of both companies, which would add to industry overcapacity, Didora said in the note.
He added that the deal “has little route overlap, which could lower regulatory risk” and could place “a ceiling on industry multiples, as the takeout was in line with historical valuation.”
“The deal is expected to close by the end of 2022, with integration beginning in early 2023 and a single operating certificate 18 to 24 months after deal close. Given the deal timeline, true run-rate synergies ($400M in revenue/$100M in costs) will not occur until 2025,” the analyst wrote.
Price Action: Shares of Frontier Group Holdings had risen by 4.68% to $13.43 and shares of Spirit Airlines had risen by 2.36% to $26.03 at the time of publication Tuesday.
Related Link: Frontier, Spirit Airlines Agree To Merge In $6.6B Deal
Photo courtesy Frontier
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