Shareholder advisory firm backs Spirit-Frontier merger

The influential shareholder advisory service Institutional Shareholder Services is now advising Spirit Airlines investors to vote in favor of a proposed merger with Frontier Airlines over a competing bid from JetBlue Airways, after Frontier upped its bid.

The recommendation, which was issued on Friday, is a reversal for ISS, which previously advised Spirit shareholders to vote against a deal with Frontier, another low-cost carrier. It comes amid a heated bidding war between JetBlue and Frontier ahead of Spirit’s shareholder vote on June 30. Many major investors take ISS recommendations seriously when deciding how to vote on corporate proposals, director nominees and other matters.

“Shareholders are best served by accepting the deal that offers the best combination of long-term value and compensation in the event of a regulatory rejection,” ISS wrote. “Overall, support for the merger with Frontier under the revised terms is warranted.”

Earlier this week, JetBlue raised its cash offer by $2 per share to $33.50, for a total of about $3.7 billion. He also offered additional concessions, like further divestments, to help secure regulatory clearance, given that the deal is likely to face stiff antitrust scrutiny. On Friday, Frontier also increased the cash portion of its offer from $2 to $4.13 per share, alongside an equity component equal to 1.9126 shares of Frontier for each share of Spirit. The deal would value Spirit at around $2.7 billion, based on its Friday stock price.

Even though Frontier’s offer initially values ​​Spirit less, Frontier argues that the equity portion of its offer allows Spirit shareholders to benefit more if the shares of the combined company rise. He also attacked JetBlue’s bid as less likely to win regulatory approval.

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.

Either deal would face intense scrutiny from the Biden administration, which has taken a more aggressive stance on antitrust issues. Both proposals offer a $350 million “reverse termination fee” in which the buyer would pay Spirit $350 million, if regulators block the deal. The two airlines are also offering Spirit shareholders immediate cash: Frontier promises $2.22 per share and JetBlue $1.50.

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 by JetBlue, arguing that the deal was unlikely to be approved by antitrust regulators and could simply represent a “cynical attempt” to disrupt its merger with Frontier.

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