Spirit Airlines winning bidder may need years to recoup price tag

The bidding war for Spirit Airlines Inc between Frontier Group Holdings Inc and JetBlue Airways Corp may leave the acquirer taking years to earn back their investment. JetBlue’s latest cash-and-stock bid values Spirit at $3.7 billion, while Frontier’s latest cash-and-stock bid, which Spirit recommends its shareholders should back, is worth $2.4 billion. Spirit has delayed its shareholder vote on the deal for a third time to July 15 to negotiate further with both suitors. JetBlue and Frontier may have to wait anywhere from three to five years or even longer to recoup their investment if they are successful, according to a dozen investment bankers and analysts interviewed by Reuters. Frontier expects the combined company to deliver annual synergies of roughly $500m, most of which will start kicking in roughly three or four years after the deal is completed. JetBlue says a tie-up with Spirit will deliver synergies of $600m to $700m the first year after integration is complete. Airline experts said the long-term synergies cited by both JetBlue and Frontier make it worth the price the companies are willing to pay for Spirit, although some analysts cautioned that the bidding war might strain their finances in the near term. “We are probably heading into a recession. This is not the right time to borrow a lot of money to buy a competitor,” said Israel Shaked, professor emeritus of finance at Boston University.<br/>