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Advisory firm urges Spirit shareholders to vote against merger with Frontier.

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

The firm, Institutional Shareholder Services, said that while the rival offer from JetBlue might face more regulatory scrutiny, it would offer Spirit investors more money and more choice, depending on whether they expect the recovery in travel demand to falter. Many large investors take ISS’s recommendations seriously when deciding how to vote on corporate proposals, director candidates and other matters.

“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 said.

JetBlue’s cash 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 offer and urged shareholders to reject a subsequent takeover bid, arguing that the deal has little chance of being approved by antitrust regulators and may simply represent a “cynical attempt” to disrupt its merger.

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 geographical strengths.

The Spirit board’s assumption that the Frontier deal would have an easier path to regulatory approval seems reasonable, ISS said. But it added that Spirit’s complete lack of confidence in 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 address 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 a similar 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 said.

Spirit said the Frontier deal was in the best interest of shareholders and the company. Ted Christie, Spirit’s chief executive, said in a statement that ISS seemed “overfocused” on the breakup fee and failed to recognize 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 statement, Robin Hayes, JetBlue’s chief executive, said the ISS recommendation “highlights the flawed process” that Spirit’s board has followed and underscores the need 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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