Merger activity remained steady last week with two new deals announced and one deal completed.
Antitrust scrutiny caused another deal to fail on Sunday. Lockheed Martin (LMT) announced the acquisition of Aerojet Rocketdyne (AJRD) over a year ago and the deal has been through several hurdles. Antitrust regulators announced early in 2021 that they would likely lengthen their investigation of the purchase. On January 25, 2022, the Federal Trade Commission sued to block the deal and Lockheed announced on Sunday that it has terminated its plans to acquire Aerojet. Given the widening spread on the deal in recent months, it does not come as a complete surprise that the deal failed. If we see forced selling by arbitrage focused funds, Aerojet might start to look attractive on a stand alone basis. The stock is currently trading at an EV/EBITDA below 10.
On February 7, 2022, Frontier Group Holdings (ULCC) announced that it is acquiring Spirit Airlines (SAVE) for $6.6 billion in a cash plus stock deal, representing a premium of of 19% over the February 4 closing price of Spirit, and a 26% premium based on the 30 trading-day volume-weighted average prices of Frontier and Spirit. Bill Franke, Chairman of Frontier Airlines has been the visionary behind this deal for over a decade. He was the Chairman of Spirit Airlines from 2006 to 2013. Bill Franke was involved in the IPOs of both Spirit and Frontier through Indigo Partners, a private equity firm that was co-founded by him.
Headquartered in Mirama, Florida, Spirit Airlines is a low-cost carrier that is known for its low ticket prices and for charging fees for other amenities like carry-ons, water, and even for printing a boarding pass. Spirit’s merger with Frontier would create a big player in the low-budget airfare market. The deal is currently trading at a spread of 7% or an annualized return of 8% assuming the deal closes by the end of the year.
You can find all the active deals listed below in our Merger Arbitrage Tool (MAT) that automatically updates itself during market hours.