Investment firm Apollo Global Management launched a £5.7 billion ($7.7 billion) bid for easyJet on Friday, trumping a rival offer from Castlelake and setting up a potential takeover battle for one of Europe’s biggest airlines.
EasyJet’s board said it would back Apollo’s £7.15-a-share proposal, withdrawing support for Castlelake’s £6.90-a-share offer ($7.3 billion), which the parties had agreed in principle only days earlier.
Apollo’s proposal, which it needs to firm up by early August, marks a bold attempt to outmaneuver Castlelake and take control of the three-decade old budget airline that has seen its stock price halve since the 2020 COVID-19 pandemic.
“It’s no surprise that a second suitor has appeared for easyJet,” said Chris Beauchamp, chief market analyst at investing and trading platform IG.
“The potential for the business remains substantial despite the underwhelming performance of recent years.”
Castlelake said it was weighing its options regarding its possible offer, without providing any further details.
Shares rise as much as 16%
Global airline shares have been hammered by spiraling jet fuel prices triggered by the war in Iran, with worries growing over the stability of the industry’s balance sheets.
EasyJet shares rose as much as 16% to £6.8, their highest since February 2022, though still below Apollo’s offer price, with some investor concerns still over regulatory hurdles to any deal.
An easyJet investor, who requested anonymity, said it was “reassuring that multiple private investors can see the undervaluation in the shares that public investors have seen for some time.”
European Union majority ownership rules require airlines that operate in the bloc to be majority EU-owned, a key hurdle for any non-EU acquisition of a European airline, analysts said.
Davy analyst Stephen Furlong, however, said both proposals could ultimately gain regulatory approval, with the key question now becoming price.
Apollo said it was committed to taking “all necessary steps” to secure any merger control and EU subsidies-related clearances needed to complete the deal.
It is also offering eligible shareholders the option to roll their stakes into the private vehicle that would buy easyJet, through which they would continue to own voting rights.
“The proposed bid not only increases the offer to shareholders, but from an easyJet board perspective supports the airline’s current growth strategy,” airline analyst John Strickland said.
Apollo plans to retain the airline’s key staff to continue easyJet’s strategy of expanding capacity and growing its holidays business.
Castlelake has largely stayed silent on specific plans for the airline beyond a broad commitment to support easyJet’s fleet modernisation program, which includes replacing older aircraft with Airbus jets.
EasyJet, Apollo claim ‘superior outcome’
“The proposed cash offer delivers a superior outcome for easyJet shareholders by providing a higher cash value than Castlelake’s latest proposal,” easyJet and Apollo said in a joint statement.
In particular, analysts pointed to easyJet’s extensive fleet of over 350 aircraft and well-established model as an excellent opportunity.
“You can jump in and get a turnkey operation playing in a world where it’s going to be very, very difficult for others to come in and play at the same level,” Alton Aviation Consultancy director Augusto Viansson Ponte told Reuters.
Apollo must announce a firm offer for easyJet by Aug. 7 or walk away. Castlelake has until Aug. 3.
Apollo also said it plans to retain the easyJet brand by continuing the existing licensing agreement between easyJet and founder Stelios Haji-Ioannou’s easyGroup.
That may appeal to Haji-Ioannou, whose family is the airline’s largest shareholder with a roughly 15% stake and receives a 0.25% royalty on easyJet’s revenue for use of the “easy” brand. Haji-Ioannou declined to comment.
Castlelake went public in May with its interest in acquiring easyJet and was rebuffed four times by the airline’s board.
In late June, however, easyJet opened its books to Castlelake in an effort to draw a higher offer.
“While shareholders will cheer a bidding war that increases the windfall, the risk of piling on debt into the business as part of the process runs the risk of underperformance in the future,” said IG’s Beauchamp.
($1 = £0.7447)