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 offer from JetBlue Airways, after Frontier increased its offer.
The recommendation, released Friday, is a turning point for ISS, which had previously advised Spirit shareholders to vote against a deal with Frontier, a fellow low-cost carrier. It comes amid a heated bidding war between JetBlue and Frontier ahead of a Spirit shareholder vote on June 30. Many major investors take ISS’s recommendations seriously when deciding how to vote on corporate proposals, director candidates and other matters.
“Shareholders are best served by closing the deal that offers the best combination of long-term value and compensation in the event of regulatory rejection,” ISS wrote. “On balance, support for the Frontier merger on the revised terms is warranted.”
Earlier this week, JetBlue increased its cash offer by $2 a share to $33.50, for a total of approximately $3.7 billion. It also offered additional concessions, such as further divestments, to help secure regulatory approval, as the deal is likely to be under tight scrutiny by competition authorities. On Friday, Frontier also increased the cash portion of its offer by $2 to $4.13 per share, in addition to an equity component equal to 1,9126 shares of Frontier for each share of Spirit. That deal would value Spirit at about $2.7 billion, based on Friday’s stock price.
While Frontier’s offer may initially value Spirit less, Frontier argues that the equity portion of its offer will allow Spirit’s shareholders to benefit further if the combined company’s stock rises. It has also attacked JetBlue’s bid because it is less likely to gain regulatory approval.
Aviation 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.
Both deals would be subject to significant scrutiny by the Biden administration, which has taken a more aggressive stance on antitrust matters. Both proposals offer a “reverse termination fee” of $350 million, with the buyer paying Spirit $350 million should regulators block the deal. Both airlines are offering Spirit shareholders cash upfront: Frontier promises $2.22 per share and JetBlue $1.50.
Spirit and Frontier announced a proposal to merge in February. Weeks later, JetBlue responded with an offer of its own. Spirit’s board of directors turned down that offer, urging shareholders to reject a subsequent takeover bid from JetBlue, arguing that the deal had little chance of being approved by antitrust regulators and was simply a “cynical attempt.” ” could be to disrupt the merger with Frontier.
