No-frills airline EasyJet says it has agreed in principle to a £5.7bn takeover proposal from US firm Apollo Global Management – just days after accepting an offer from a rival suitor.
The carrier said Apollo’s offer delivered “a superior outcome” to investors than the previous bid from US investment firm Castlelake that EasyJet had also agreed to in principle at the weekend.
EasyJet is one of Europe’s largest airlines. It employs more than 19,000 people, and flies around 1,200 routes across 35 European countries.
It was founded by Sir Stelios Haji-Ioannou in 1995 to offer cheap air fares to Europe and, together with other carriers such as Ryanair, has transformed UK air travel.
Its first flights took off in November 1995 flying from Luton to Glasgow and Edinburgh, with its first international flights the following year.
Sir Stelios and the Haji-Ioannou family still own about a 15% stake in the airline.
EasyJet said Apollo’s offer was worth £7.15 per share, compared with the £6.90 per share proposal from Castlelake which it said it was now “no longer minded” to accept.
In a short statement, Castlelake said it noted the statement from EasyJet and Apollo, and was “considering its options in respect of its possible offer”.
Analysts say EasyJet is an attractive target as it is profitable, has a large fleet of aircraft, and has take-off and landing slots at major airports such as Gatwick and Paris Charles de Gaulle. The most popular slots can be worth tens of millions of pounds when traded between airlines.
Susannah Streeter, chief investment strategist at Wealth Club, said Apollo was focusing on EasyJet’s potential.
“While the carrier has been buffeted recently by higher fuel costs and geopolitical turbulence, it has built a resilient European network, a strong balance sheet and, crucially, a fast-growing holidays business. That’s likely to be one of Apollo’s biggest attractions.”
“Package holidays generate higher margins and more predictable revenues than airline tickets alone,” she added.
“For passengers, it’s very much business as usual for now, with flights, bookings and loyalty schemes unaffected while any deal works its way through the regulatory process.”
Conroy Gaynor, senior consumer analyst at Bloomberg Intelligence, said while Apollo has “more explicitly” backed EasyJet’s growth model, “the need to improve the airline margin suggests any success in lowering costs won’t necessary translate to lower fares”.
The latest statement from EasyJet does not mean a deal has been confirmed. Apollo has been set a deadline of 17:00 on 7 August to either make a firm bid for EasyJet or walk away. Castlelake’s deadline to make a firm offer is 3 August.
Apollo’s move came after Castlelake had made a series of offers for EasyJet, which had initially been rebuffed by the carrier after it accused the US firm of trying to buy it “on the cheap”.
However, on Sunday, EasyJet said it had reached an agreement in principle with Castlelake, over a potential takeover offer worth around £5.2bn.
One significant regulatory hurdle to any EasyJet takeover is that European Union regulations stipulate the carrier must be majority-owned by EU citizens.
Castlelake had proposed going into partnership with two EU nationals, businessmen Peter Bellew and Mark Breen. They would own an EU-based company that would have majority control of the airline.
Apollo said it would take “all necessary steps” to meet any EU conditions surrounding the deal.
Shares in EasyJet jumped nearly 15% on Friday to stand at around 673p.
EasyJet said the offer from Apollo represented an 81% increase from its share price of £3.94 on 28 May, the last day of trading before the takeover interest from Castlelake was made public.
Until EasyJet reached agreement with Castlelake, it had accused the US firm of being “highly opportunistic” with its bids, the first of which was at 560p a share, arguing that its share price had been “temporarily depressed” partly due to the impact of Iran war on the travel sector.
“The bidding war now comes down to price,” said Dan Coatsworth, head of markets at AJ Bell.
“The spotlight now turns back to the original suitor [Castlelake] to see if it will dig even deeper to beat Apollo. Shareholders will be putting their feet up and enjoying the ride.”
