A Frontier Airlines proposal to create a holding company incorporated in Delaware has drawn opposition from shareholder advisory firm Institutional Shareholder Services.
ISS said in a report that it believes the change in the company’s state of incorporation would have an adverse impact on shareholder rights, though it “may enhance the company’s ability to maximize shareholder value.”
Unlike Colorado, Delaware allows no shareholder rights to call special meetings or to act by written consent, and it requires advance notice for shareholder nominations, according to ISS.
A Frontier shareholder meeting is scheduled March 27 for approval of the plan.
“The shareholders are giving up some say, which is what provokes me to want to understand what is the benefit” in exchange, said shareholder Jeff Linroth, who is an investment adviser and president of Leaving It Better LLC in Longmont. “I’m happy to do that if I can thoroughly understand my benefits.”
Linroth said he has high regard for Frontier’s management and is gathering more information before deciding on his vote.
Jeffrey Roy, a consultant with Aviation Safety Consulting of Colorado, said he has voted for the holding company. “My feeling is that the holding company is a good thing because it would allow the company to grow some more.”
Frontier filed a letter to shareholders supporting its proposal, explaining that it may want to form a Mexican subsidiary or a Canadian subsidiary, and that the holding company may make it easier to acquire assets, businesses or joint ventures.
The new structure would also allow more options for financing, and would allow it to create a regional aircraft subsidiary and to be more competitive in the airline industry, according to Frontier.
The company also expects to benefit from the business-friendly corporate laws in Delaware.
If approved, Frontier Airlines Inc., a Colorado corporation, would become a wholly owned subsidiary of Frontier Airlines Holdings Inc. Frontier’s headquarters will remain in Denver.
Shareholders would get the same number and percentage of shares of Frontier Airlines Holdings. Other airlines, such as United and American, have holding companies incorporated in Delaware.
Separately, a Bear Stearns research analyst report on JetBlue Airways named Frontier and Spirit Airlines as the most likely candidates for a merger with JetBlue if JetBlue chose to grow through a merger or acquisition, noting Frontier’s plans for a holding company structure.
But, “a problem with Frontier is its exposure to United and Southwest, both of whom are growing capacity in Denver,” according to the report. “When Southwest enters a market, yields tend to fall by 20 percent.”
Staff writer Kelly Yamanouchi can be reached at 303-820-1488 or kyamanouchi@denverpost.com.
