ISS urges Spirit shareholders to vote against Frontier merger

Spirit Airlines shareholders are expected to vote against a proposed merger with Frontier Airlines in favor of a competing bid from JetBlue Airways, a major shareholder advisory firm recommended on Tuesday.

The company, Institutional Shareholder Services, said that while JetBlue’s competing offer could face greater regulatory scrutiny, it would give Spirit investors more money and more choice, depending on whether they are expect the recovery in travel demand to falter or not. Many major investors take ISS recommendations seriously when deciding how to vote on corporate proposals, director nominees and other matters.

“Overall, a potential deal with JetBlue would appear to offer shareholders a superior option, allowing those concerned about the turmoil ahead to exit at a significant premium, while allowing those with more optimistic prospects to reinvest. “, said ISS.

JetBlue’s cash offer was at a 56% premium to Frontier’s cash and stock offer last Wednesday, ISS said.

Spirit and Frontier announced a proposed merger in February. A few weeks later, JetBlue responded with its own offer. Spirit’s board of directors declined the offer and urged shareholders to reject a subsequent takeover bid, arguing that the deal is unlikely to be approved by antitrust regulators and could simply represent an “attempt cynical” to disrupt his fusion.

Airline analysts generally agree that a merger between Spirit and Frontier would be easier to execute because the airlines operate a similar low-cost business model with different geographic strengths.

The Spirit board’s assumption that the Frontier deal would have an easier path to regulatory approval seems reasonable, ISS said. But he added that Spirit’s complete lack of confidence in the JetBlue offer “shows much less”.

Either deal would face intense scrutiny from the Biden administration, which has taken a more aggressive stance on antitrust issues. JetBlue has attempted to address this concern by pledging to pay Spirit a $200 million break-up fee if its merger is not approved. Frontier has provided no such warranty.

Absent a similar promise from Frontier, Spirit shareholders “appear best to reject the proposed transaction at this time, as a signal to the board to engage more productively with JetBlue,” ISS said. .

Spirit said the deal with Frontier was in the best interests of shareholders and the company. Ted Christie, managing director of Spirit, said in a statement that ISS seemed “too focused” on breakage fees and did not acknowledge the “high business disruption” Spirit could experience following a lengthy regulatory review of the JetBlue deal.

“Our Board of Directors continues to unanimously recommend that Spirit shareholders vote for the proposed merger with Frontier,” Mr. Christie said.

In a statement, Robin Hayes, chief executive of JetBlue, said the ISS recommendation “highlights the flawed process” Spirit’s board followed and underscores the need to resume negotiations “this time around.” in good faith”.

Vanguard, BlackRock and Fidelity Investments are Spirit’s three largest institutional shareholders. All three declined to comment on their position ahead of the June 10 vote on the Frontier deal.

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