Apollo’s counter-offer gives EasyJet a boost in London

(Il Sole 24 Ore Radiocor) - EasyJet takes off on the London Stock Exchange (FTSE 100 ), after having ‘taken on board’ Apollo Global Management, the American private equity giant, which tabled a takeover bid higher than that of the investment firm Castlelake, which has consequently been ‘sidelined’. EasyJet shares reached 675.94 pence, their highest level since February 2022, whilst remaining below the price offered by Apollo. Even after Castlelake’s bid on Sunday 5 July, EasyJet shares struggled to hold onto their gains due to concerns over regulatory hurdles, particularly within the EU.

“The Board of Directors of EasyJet and Apollo Management announce that they have reached an agreement in principle on the key financial terms of a potential cash takeover bid for the entire issued and to-be-issued share capital of EasyJet,” states a joint press release. Under the terms of Apollo’s proposal, EasyJet shareholders are entitled to receive £7.15 per share, totalling £5.7 billion, compared with the £6.90 offered by Castlelake. EasyJet’s board has stated that it no longer recommends acceptance of Castlelake’s offer, to which it had given its approval in principle earlier this week, whilst regarding Apollo’s proposal, it stated that ‘the financial terms of the proposed all-cash takeover bid are at a level such that they can be recommended to EasyJet shareholders’.

As traders point out, both Castlelake and Apollo are US private equity firms and must therefore comply with UK and European regulations, which require that the majority of EasyJet’s share capital be held by European citizens. Apollo has undertaken to take ‘all necessary measures’ to obtain the approvals required by the European Union regarding the merger and state aid control, in order to finalise the transaction. Apollo must announce a definitive bid for EasyJet by 7 August or withdraw it. Castlelake has until 3 August, which could in principle pave the way for a new bid, although analysts remain sceptical. Apollo has made it clear that it intends to retain the EasyJet brand following the potential acquisition, by renewing the existing licence agreement between EasyJet and easyGroup, the company owned by Stelios Haji-Ioannou. This solution could prove more attractive to Haji-Ioannou, the company’s founder and largest shareholder, who owns around 15 per cent of the business alongside his family and receives a 0.25 per cent royalty on EasyJet’s revenue for the use of the ‘easy’ brand. In May, Castlelake publicly announced its interest in acquiring the British low-cost carrier, initially receiving four rejections from the company’s board. However, at the end of June, EasyJet granted Castlelake access to its financial statements in order to secure a higher bid, and indeed the fifth proposal had met with a favourable response from the British board.

Meanwhile, the first comments from analysts are coming in. Apollo’s takeover bid significantly increases the likelihood of the deal succeeding, after easyJet’s board of directors indicated that it would support the highest bid should it become definitive, say experts at RBC Capital Markets in a note, adding that whilst a bidding war cannot be ruled out, Castle Lake had already substantially increased its bid, making a further significant increase less likely. According to analysts at Bernstein, ‘for the deal to be financially viable at this price, we believe easyJet must undertake a significant restructuring (tripling operating profit by 2030) or generate value through the sale of assets’. In a flash note, the experts also point out that “Apollo has a proven track record in investing in airline equity stakes (Sun Country, Aeromexico), as well as in debt and hybrid debt (SAS, LATAM, Air France-KLM)”. The US firm has indeed issued statements suggesting confidence in the strategy, supporting easyJet in pursuing its business plan and achieving its long-term strategic objectives; ‘however, we are not certain that this is guaranteed in the medium or long term’, Bernstein adds.