Spirit Airlines (SAVE), mcap=$2.5bn, price $22.97 vs $20.88

Arb pitch:
– Traded below unaffected price with two merger offers.
ULCC offer at 1.91 shares + $2.13 cash (3% spread).
JBLU offer at $33 in cash (60% spread).
– Mgmt reluctant to engage with JBLU stating risks DOJ approval.
– Limited downside if both mergers fail.

– The implied price of ULCC offer at $21.4/share.
JBLU‘s offer at $33/share. – Downside in case both mergers fail at $20/share.

Exp. gain: 60% to $33/share in a merger with JBLU.

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1 Comment

1 thought on “Spirit Airlines (SAVE), mcap=$2.5bn, price $22.97 vs $20.88”

  1. The JBLU offer value is $33.50 but has huge antitrust risk. If SAVE decides to do the right thing and engage with JBLU (at the expense of the ULCC deal), then SAVE will go up but will likely still trade at a 20% discount, or about $27.
    If SAVE sticks to the ULCC deal and JBLU gives up, then the short pressure alone (from setting up the spread) will probably send ULCC down about $1, to mid-9’s. at that price, the ULCC deal value is around $22.50.
    The ULCC is not without antitrust risk either of course. 15% discount to $22.50 is about $19.
    With SAVE at $24.50, this is a +$2.50/-$5.50 situation. SAVE at $24.50 therefore implies that there is a 69% chance that the JBLU scenario will play out.
    I think that’s a bit overly optimistic.


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