Spirit Airlines’s shareholders ought to vote in opposition to a proposed merger with Frontier Airlines in favor of a competing provide from JetBlue Airways, a outstanding shareholder advisory agency really helpful on Tuesday.
The agency, Institutional Shareholder Services, mentioned that whereas the rival provide from JetBlue would possibly face extra regulatory scrutiny, it could provide Spirit traders extra money and extra alternative, relying on whether or not they anticipate the restoration in journey demand to falter. Many massive traders take ISS’s suggestions significantly 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 provide represented a 56 % premium to Frontier’s cash-and-stock provide as of final Wednesday, ISS mentioned.
Spirit and Frontier introduced a proposal to merge in February. Weeks later, JetBlue countered with its personal provide. Spirit’s board declined that supply and urged shareholders to reject a subsequent takeover bid, arguing that the deal has little probability of being accredited by antitrust regulators and will merely signify 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 the same low-cost enterprise mannequin with totally 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 provide “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 deal with that concern by pledging to pay Spirit a $200 million breakup charge if its merger isn’t accredited. Frontier has made no such assure.
Absent the same 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 corporate. Ted Christie, Spirit’s chief govt, mentioned in a press release that ISS appeared “overfocused” on the breakup charge and failed to acknowledge the “elevated business disruption” Spirit may face from a prolonged regulatory evaluate 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 place forward of the June 10 vote on the Frontier deal.
