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ISS Urges Spirit Shareholders to Vote Against Frontier Merger

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Spirit Airlines’s shareholders should vote against a proposed merger with Frontier Airlines in favor of a competing offer from JetBlue Airways, a outstanding shareholder advisory firm really useful on Tuesday.

The firm, Institutional Shareholder Services, said that while the rival offer from JetBlue might face more regulatory scrutiny, it might offer Spirit investors more cash and more alternative, depending on whether or not they expect the recovery in travel demand to falter. Many large investors take ISS’s recommendations seriously when deciding the best way to vote on corporate proposals, director candidates and other matters.

“On balance, a possible agreement with JetBlue would seem to supply shareholders superior optionality, allowing those concerned with the turbulence ahead to exit at a major premium, while allowing those with a more optimistic outlook to reinvest,” ISS said.

JetBlue’s money offer represented a 56 percent premium to Frontier’s cash-and-stock offer as of last Wednesday, ISS said.

Spirit and Frontier announced a proposal to merge in February. Weeks later, JetBlue countered with its own offer. Spirit’s board declined that supply and urged shareholders to reject a subsequent takeover bid, arguing that the deal has little likelihood of being approved by antitrust regulators and should simply represent a “cynical attempt” to disrupt its merger.

Airline analysts generally agree that a merger between Spirit and Frontier could be easier to execute since the airlines operate the same low-cost business model with different geographical strengths.

The Spirit board’s assumption that the Frontier deal would have a better path to regulatory approval seems reasonable, ISS said. However it added that Spirit’s complete insecurity within the JetBlue offer “appears far less so.”

Either deal would face substantial scrutiny from the Biden administration, which has taken a more aggressive stance on antitrust matters. JetBlue has tried to deal with that concern by pledging to pay Spirit a $200 million breakup fee if its merger isn’t approved. Frontier has made no such guarantee.

Absent the same promise from Frontier, Spirit’s shareholders “appear higher off rejecting the proposed transaction at the moment, as a signal to the board to interact more productively with JetBlue,” ISS said.

Spirit said the Frontier deal was in the perfect interest of shareholders and the corporate. Ted Christie, Spirit’s chief executive, said in a press release that ISS seemed “overfocused” on the breakup fee and failed to acknowledge the “elevated business disruption” Spirit could face from a lengthy regulatory review of the JetBlue deal.

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

In a press release, Robin Hayes, JetBlue’s chief executive, said the ISS suggestion “highlights the flawed process” that Spirit’s board has followed 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 comment on their position ahead of the June 10 vote on the Frontier deal.

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