EasyJet has agreed in principle to a $7.3 billion (€6.6 billion) cash offer from Apollo Global Management, valuing the airline at $9.17 (£7.15) per share. This bid supersedes a $8.86 (£6.90) per share offer from US private equity firm Castlelake, which easyJet had initially supported just days prior. The Apollo offer represents an 81% premium to easyJet's closing price of $5.07 (£3.94) on May 28, before Castlelake's interest became public, highlighting the airline's significant undervaluation.
Despite the improved offer, easyJet's shares, which climbed around 15% to approximately $8.67 (£6.75) on Friday morning, still remain below Apollo's bid price. This discrepancy reflects investor skepticism regarding the deal's completion, primarily due to regulatory hurdles. EU law mandates that airlines operating within the bloc must be majority-owned and effectively controlled by EU member states or qualifying European nationals. While Apollo has pledged to take all necessary steps to secure merger clearance and approvals related to the EU's Foreign Subsidies Regulation, the specific structure to satisfy these ownership rules remains unclear. Previously, Castlelake had proposed a structure where it would own 49% of the bidding vehicle, with the remainder held by two EU nationals, Peter Bellew and Mark Breen.
Analysts have pointed out that the current share price levels suggest a more than 30% probability of the deal falling through, underscoring the complexity of the EU ownership rules. JPMorgan analysts, for instance, raised concerns about how both Castlelake and easyJet would meet these regulations and agree on a workable structure, especially considering the unclear views of founder and major shareholder Stelios Haji-Ioannou, who with his family owns roughly 15% of the airline. Apollo has also committed to retaining the easyJet name by extending its existing license with easyGroup.
The bidding war has pushed easyJet's shares to their highest level since early 2022, though they remain significantly below their late 2010s value. The share climb, which started after Castlelake's interest emerged in late May, comes after a period of turbulence for the airline, including soaring jet fuel prices due to the US-Iran conflict and general market uncertainty. Castlelake has until August 3 to formalize its bid or withdraw, while Apollo faces a deadline of August 7 under British takeover rules. The situation highlights easyJet's need for strategic direction amidst ongoing challenges.
