US private equity firm Apollo has entered a bidding war for easyJet with a £5.7bn offer, valuing the airline at £7.15 a share. The easyJet board announced on Friday that it is now 'minded to recommend' Apollo's all-cash proposal to shareholders, reversing its earlier stance of supporting a £6.90 per share deal from rival firm Castlelake.
Board shifts support to Apollo
EasyJet's board had agreed 'in principle' to Castlelake's £5.5bn offer earlier this week, but analysts argued that price undervalued the company. On Friday, the board switched direction, stating it had 'carefully considered' Apollo's offer and concluded it would be 'minded to recommend' it. The board is no longer minded to recommend the Castlelake proposal.
Apollo's offer allows current shareholders, including founder Stelios Haji-Ioannou who owns over 15% of the company, to remain invested rather than being forced to sell when easyJet delists. Haji-Ioannou would be in line for an £855m payday if he chooses to sell his stake. Apollo intends to keep in place an existing brand licence agreement with Haji-Ioannou, under which he receives royalties.
Apollo backs current strategy
Apollo signalled it would support easyJet's existing strategy and management, and is not looking to break up the company. 'Apollo believes in easyJet's existing strategy of evolving and strengthening the low-cost carrier model, most notably through upgrading the fleet, enhancing the ancillary and loyalty offering, and scaling holidays into a structurally differentiated earnings stream,' the US firm said. It also recognised the contribution of easyJet's management and employees, stating that 'identifying and retaining key staff will be of paramount importance.'
Apollo has until 7 August to make a firm offer. EasyJet's shares jumped 14% on Friday morning as investors welcomed the prospect of a bidding war.
Regulatory hurdles
Under EU rules, European airlines must be majority-owned by investors within the region, a rule that still applies to easyJet after Brexit. Apollo said it would 'take all necessary steps' to meet EU regulations and made a 'best endeavours' commitment to satisfy other regulatory conditions.
Castlelake, in its bid, announced a partnership with two investors to meet the requirements: Peter Bellew, former COO at Riyadh Air, easyJet and Ryanair, and Mark Breen, CEO of Oneiros Aerospace. Castlelake said on Friday it would 'consider its options' and make a further announcement 'as and when appropriate.'
Apollo's aviation track record
Apollo has made several investments in aviation. In November, it completed a $745m financing of Virgin Atlantic's Heathrow slot portfolio. It has also invested in US low-cost carrier Sun Country Airlines, Aeroméxico, Atlas Air, and Swissport. During the Covid pandemic, Apollo provided €2.5bn in financing to Air France-KLM, and in 2022, $700m to support the restructure of Scandinavian Airlines.
