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Spirit Airlines is one of the more interesting stocks that has come into focus over the past week. Today, SAVE stock is up more than 3% as well roughly 7% for the past five days. This comes as investors dive into the company’s future as a possible merger target.
Spirit’s potential as a bolt-on acquisition for existing airlines has garnered a lot of attention. In a time when valuations are depressed, industry consolidation is also common. Accordingly, the bidding war for Spirit’s fleet has now come about, with both JetBlue (NASDAQ:JBLU) and Frontier offering competing bids. Now, today’s appreciation for SAVE appears to be the result of proxy advisor Institutional Shareholder Services (ISS) encouraging shareholders to vote down Frontier’s offer.
Let’s dive into what this news means — and why investors are viewing it positively.
SAVE Stock Takes Off on Speculation Around Proposed Merger
Frontier’s mostly stock offer of $22.31 per share for Spirit is deeply discounted relative to JetBlue’s $30 per share offer. Both companies will also have to deal with various regulatory hurdles for both deals. However, the fact that SAVE stock currently trades at around $21 suggests investors don’t think either company will complete a deal.
That makes the current price action with this discount airline stock interesting. If shareholders vote as ISS suggests and reject the Frontier offer, JetBlue will be the only remaining viable partner. Given the higher premium for this potential takeover, perhaps there’s more upside potential with Spirit right now.
Of course, these large merger deals are difficult to pass through, particularly in the airline sector. The regulatory hurdles are real — and it appears that Frontier’s proposal may be the more viable offer right now. That said, the ability to renegotiate higher could see shares of SAVE stock rally as shareholders play hard to get.
Spirit Airlines management has said they don’t believe shareholders will vote down the Frontier proposal. But anything is possible. Today, investors are looking for reasons to buy SAVE stock, given its discount to the acquisition price.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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