Earlier this year, Frontier Group Holdings Inc (NASDAQ: ULCC) agreed to buy Spirit Airlines (NYSE: SAVE) for $2.9 billion in cash and stock. Neither of those airlines provides long international flights but are two of the cheapest domestic flight providers in the US. Since the announcement Spirit’s stock has been on a rollercoaster of sorts, with initial promise, followed by a dip when investors seemingly caught on to the delay of the merger. Frontier took a harder hit, seeing its stock reach a 52-week low in the aftermath of the non-action.
Part of the reason there hasn’t been a deal between the two is JetBlue (NASDAQ: JBLU) entered with its own $3.4 billion all-cash takeover bid. Spirit will have a shareholder's meeting on June 30th to discuss which course of action suits them best.
JetBlue views the deal as a means for quick growth and capitalizing on some of their weaker areas, whereas Frontier views the deal as a way to combine two similar-minded companies to create the fifth largest airline in the United States.
There were some slight pre-market movements for the three companies involved, but nothing too significant. All three companies will be ones to keep your eye on ahead of the shareholder's meeting later this month.
Generally speaking, during acquisitions, the acquiring company sees an initial dip, and the target company receives a spike. The acquiring company is usually forced to pay a premium and incurs debt during the acquisition - which may be the reason for the initial dip, whereas the target company only agrees to a deal if the purchase price exceeds its current value. Long-term, if you believe in the company and its vision, the acquisition tends to pay off and the share price will grow over time.
Consider April’s transaction between Discovery, AT&T (NYSE: T), and WarnerBros; Now Warner Bros Discovery Inc.(NASDAQ: WBD). AT&T was trading at about $18 share when the transaction was officially announced on April 8th. Since the transaction, they’ve been as high as $22/share and currently trade at about $20. Before the merger, Discovery had 665 million diluted shares, and the stock price was around $25. After the merger, with 2427 million shares, the new company Warner Bros. Discovery's stock price was around $25. Currently, WBD is trading at about $14/share.
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