Investment Firm Apollo Makes $7.7 Billion Bid for EasyJet
Apollo Global Management has made a £5.7 billion ($7.7 billion) bid for EasyJet, surpassing an earlier offer from Castle Lake and potentially sparking a competitive takeover scenario for the well-known airline.
EasyJet’s board has expressed its support for Apollo’s proposal of £7.15 per share, retracting its earlier backing for Castle Lake’s offer of £6.90 per share ($7.3 billion), which had been tentatively accepted just days prior.
This bid by Apollo, which needs to be finalized by early August, aims to gain control of EasyJet, a low-cost carrier that’s seen its share value dropped significantly since the pandemic hit in 2020.
Commenting on this development, Chris Beauchamp, chief market analyst at IG, noted, “It’s not surprising that EasyJet has a second suitor. The potential for growth in the business is still considerable, despite its impressive performance in recent years.”
In response, Castle Lake mentioned that it is evaluating options for its own proposal but didn’t offer specifics.
Stock Price Sees Increase
Recently, shares of global airlines have been pressured by rising jet fuel costs due to geopolitical tensions, raising questions about the industry’s financial health.
EasyJet’s shares climbed as much as 16% to £6.8, marking the highest price since February 2022. However, they remain below the offer price from Apollo, and concerns linger over possible regulatory challenges.
An EasyJet investor remarked on the situation, saying, “We’re relieved to see that more retail investors are recognizing the stock’s undervaluation, something we’ve believed all along.”
Analysts highlight that ownership regulations in the European Union require airlines within the region to have majority ownership, posing a challenge for non-EU firms looking to acquire European airlines. Yet, Davy analyst Stephen Furlong indicated that both proposals could potentially navigate regulatory approval, provided the price is favorable.
Apollo has committed to taking necessary steps to secure merger control and European Union subsidy approvals to facilitate the acquisition.
Furthermore, the firm is offering eligible shareholders the chance to exchange their shares for interests in a private entity that will acquire EasyJet while maintaining their voting rights.
John Strickland, an airline analyst, commented that Apollo’s bid not only offers a higher value for shareholders but aligns with EasyJet’s growth strategy according to the airline’s board.
Apollo has expressed intentions to preserve vital airline personnel to continue the company’s strategy of expanding its capacity and holiday offerings.
Castle Lake hasn’t disclosed specific plans for the airline but has broadly indicated its commitment to supporting EasyJet’s fleet modernization efforts, which include upgrading to newer Airbus aircraft.
Joint Statement on Bid
EasyJet and Apollo jointly asserted that the proposed cash offer delivers a superior outcome for shareholders by providing more cash compared to Castle Lake’s offer.
Analysts emphasize that EasyJet’s extensive fleet of over 350 aircraft presents a valuable asset for prospective buyers.
Apollo needs to announce a firm offer by August 7 to maintain its pursuit, while Castle Lake has time until August 3.
Apollo also plans to keep the EasyJet brand intact, adhering to the existing license agreement with Stelios Haji-Ioannou’s easyGroup, which could be appealing to the family, as they are the largest shareholders with around 15% of the stock and earn a royalty from the brand. However, Haji-Ioannou has chosen not to comment at this time.
Castle Lake entered the public fray in May with its interest in EasyJet but had been turned down multiple times by the airline’s board. Nonetheless, by late June, EasyJet had opened talks with Castle Lake, likely in hopes of drawing a better offer.
As Beauchamp noted, while shareholders may favor a bidding war that drives profits higher, there’s a potential risk of accumulating debt, which could lead to underperformance in the future.
