US ultra-low-cost-carriers Spirit Airlines (S64) (SAVE) and Frontier Airlines are changing the terms of their merger agreement, adding a break-up fee if the deal does not go ahead.  

Should the planned tie-up be blocked for competition reasons, Frontier will pay a reverse termination fee of $250 million, or $2.23 per share, to Spirit, the two airlines announced on June 2, 2022. 

Ted Christie, chief executive officer of Spirit, said that while shareholders had been supportive of the planned deal, there had been requests for more protections for stockholders.  

“After discussing this feedback with the Frontier Board and management team, we have agreed to amend the merger agreement,” Christie said.  “We look forward to closing the transaction and bringing more ultra-low fares to more people in more places." 

Low-cost airline JetBlue (JBLU) has made a rival bid for Spirit and been repeatedly rebuffed. One of the arguments JetBlue (JBLU) put forward as to why its proposal was superior was how Frontier’s offer did not have a reverse break-up fee.  

Advisory firm ISS issued a report on May 31, 2022, saying that JetBlue’s (JBLU) offer was superior from a financial standpoint, with a higher cash consideration. It raised concerns over the lack of a reverse termination fee. In a response on the same day, Spirit said ISS appeared “overfocused” on the fee. 

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Spirit reiterated its support for a deal with Frontier on June 2, 2022. "The combination of a higher reverse termination fee and a much greater likelihood to close in a Frontier merger provides substantially more regulatory protection for Spirit stockholders than the transaction proposed by JetBlue (JBLU)," said Mac Gardner, Spirit Chairman. 

Investor Bill Franke, Chair of Frontier's Board of Directors and the managing partner of Indigo Partners, Frontier's majority shareholder, said that bringing together Spirit and Frontier would create the “most competitive ultra-low fare airline” in the US.   

"Given our conviction that regulators will find this combination to be pro-competitive, we have agreed to institute a reverse termination fee,” Franke said in the statement.