ISS Urges Spirit Shareholders to Vote Against Frontier Merger

Spirit Airlines’s shareholders ought to vote towards a proposed merger with Frontier Airlines in favor of a competing supply from JetBlue Airways, a distinguished shareholder advisory agency really helpful on Tuesday.

The agency, Institutional Shareholder Services, mentioned that whereas the rival supply from JetBlue may face extra regulatory scrutiny, it could supply Spirit buyers extra money and extra selection, relying on whether or not they anticipate the recovery in journey demand to falter. Many massive buyers take ISS’s suggestions critically when deciding how to vote on company proposals, director candidates and different issues.

“On balance, a potential agreement with JetBlue would appear to offer shareholders superior optionality, allowing those concerned with the turbulence ahead to exit at a significant premium, while allowing those with a more optimistic outlook to reinvest,” ISS mentioned.

JetBlue’s money supply represented a 56 % premium to Frontier’s cash-and-stock supply as of final Wednesday, ISS mentioned.

Spirit and Frontier introduced a proposal to merge in February. Weeks later, JetBlue countered with its personal supply. Spirit’s board declined that provide and urged shareholders to reject a subsequent takeover bid, arguing that the deal has little probability of being authorized by antitrust regulators and will merely characterize a “cynical attempt” to disrupt its merger.

Airline analysts usually agree {that a} merger between Spirit and Frontier can be simpler to execute as a result of the airways function an identical low-cost business mannequin with completely different geographical strengths.

The Spirit board’s assumption that the Frontier deal would have a better path to regulatory approval appears affordable, ISS mentioned. But it added that Spirit’s full insecurity within the JetBlue supply “appears far less so.”

Either deal would face substantial scrutiny from the Biden administration, which has taken a extra aggressive stance on antitrust issues. JetBlue has tried to tackle that concern by pledging to pay Spirit a $200 million breakup payment if its merger isn’t authorized. Frontier has made no such assure.

Absent an identical promise from Frontier, Spirit’s shareholders “appear better off rejecting the proposed transaction at this time, as a signal to the board to engage more productively with JetBlue,” ISS mentioned.

Spirit mentioned the Frontier deal was in one of the best curiosity of shareholders and the company. Ted Christie, Spirit’s chief govt, mentioned in a press release that ISS appeared “overfocused” on the breakup payment and failed to acknowledge the “elevated business disruption” Spirit may face from a prolonged regulatory evaluation of the JetBlue deal.

“Our board continues to unanimously recommend that Spirit stockholders vote for the merger proposal with Frontier,” Mr. Christie mentioned.

In a press release, Robin Hayes, JetBlue’s chief govt, mentioned the ISS suggestion “highlights the flawed process” that Spirit’s board has adopted and underscores the necessity to restart negotiations “this time in good faith.”

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

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