Spirit Airlines shareholders urged to reject Frontier deal

Bloomberg

Spirit Airlines Inc shareholders should reject a pending takeover deal with Frontier Group Holdings Inc as a signal to the board to engage more with rival suitor JetBlue Airways Corp over its competing bid, a prominent shareholder-advisory firm said.
While both deals have inherent regulatory risks, the offer from JetBlue is superior from
a financial standpoint, Institutional Shareholder Services Inc said in a report. Spirit rejected JetBlue’s $3.6 billion original offer this month, prompting it to launch a hostile $3.3 billion tender bid.
The report could give new life to JetBlue’s effort to capture growth it can’t otherwise attain, using a merger to create a more viable competitor to the nation’s four-largest carriers. It would also provide an infusion of aircraft orders and workers as the industry continues to struggle with staffing.
“It’s a win for JetBlue and adds pressure for shareholders who have to vote,” said George Ferguson, a Bloomberg Intelligence analyst. Frontier may need to increase its offer and add a reverse breakup fee to remain competitive, he said.
Frontier didn’t respond to a request for comment.
A JetBlue-Spirit merger would combine very different business models, adding extra complexity to a transaction. Spirit has previously said such a deal would face antitrust pushback, leading it
to favor a tie-up with similarly
focused Frontier, creating the largest US deep-discount carrier with bare-bones fares and fees for anything extra.
“JetBlue’s proposal arguably faces more complex regulatory headwinds,” the ISS report said, particularly given an existing federal antitrust lawsuit over a JetBlue and American Airlines Group Inc partnership in
the northeast US. “Nonetheless, there does not seem to be sufficient evidence at this time suggesting that its proposal to acquire Spirit has zero chance of receiving regulatory approval.”
Both transactions, ISS said, are likely to “face significant regulatory uncertainty.”
Spirit said that it continues to support Frontier’s $2.9 billion stock-and-cash proposal. A JetBlue transaction could lead to as much as two years of business disruption during the antitrust review process, Spirit said in a statement.
“The JetBlue proposal carries significantly greater regulatory obstacles, and JetBlue absolutely should pay Spirit stockholders more to compensate for that risk,” Spirit Chief Executive Officer Ted Christie said in the statement.