What Made Spirit Airlines Stock Soar?

Spirit Airlines and Frontier Group Holdings announced intentions to merge on Monday to form a new cheaper airline in the United States.
WAN CHAI, Hong Kong - March 24, 2022 - PRLog -- Spirit shares were up 27% for the week as of Friday morning's trading session, indicating that investors are thrilled about the acquisition.

Frontier and Spirit both operate under the same "ultra-low cost" business model, with rock bottom rates and very little amenities. While there is considerable overlap, merging Frontier's western focus with Spirit's extensive East Coast and Caribbean coverage results in a more national airline. The merged airline would be the sixth largest in the United States.

Frontier is officially the purchaser in this case and after the transaction, Frontier stockholders would own 51% of the combined company. As a result, Spirit shareholders will benefit from the premium. Spirit owners would receive 1.9126 Frontier shares and $2.13 in cash for each share they own under the terms of the acquisition, giving Spirit an implied value of approximately 20% more than the stock's pre-deal closing last week. The resultant business would have the lowest expenses in the market, as well as a combined 350 plane order, allowing it to grow at a compound yearly rate of 13% through 2026.

The purchase is still subject to regulatory approval, which in this context isn't a guarantee. Last year, the Department of Justice viewed a planned joint venture between American Airlines Group and JetBlue Airways with skepticism, anticipating a loss of competitiveness. However, the Department of Justice argued that the joint venture makes JetBlue less likely to unite with another discounter to form a stronger discount brand. Spirit and Frontier want to accomplish just that and considering that the merged airlines would still only control approximately 7% of the US sector, we believe the government will finally approve the merger.

As a current Spirit shareholder, you should be enthusiastic about the prospect of receiving a portion of your investment back in cash while simultaneously maintaining exposure to the deal's potential upside through Frontier shares. The airlines are expected to experience a lot of turbulence in the coming months as they try to get the transaction approved by authorities and begin the integration process, which still leaves a lot to appreciate about this combination for long term investors.

Established in 2015 and headquartered in Hong Kong, Enbridge International Consulting Limited is an independent boutique asset management Firm committed to serving retail and institutional investors as well as affluent high net worth individuals. As a boutique Firm, our ability to offer customized financial advice is second only to the vast variety of financial products and services at our disposal. We focus on investment vehicles that deliver significant appreciation and an absolute sustainable return.  Please visit our website https://enbridgeconsulting.com/

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