EasyJet has rejected a £4.7bn takeover offer from US investment firm Castlelake, marking the third time the board has turned down the bidder's advances. Castlelake went public with its 625p per share proposal on Monday, hoping to pressure EasyJet's board into negotiations. However, the market reaction was muted, with shares rising only 2% to 518p, far below the offer price.
Shareholder Scepticism
The wide gap between the offer and market price suggests investors doubt the bid's success. Castlelake's tactic of going public is standard, but it faces significant hurdles. Stelios Haji-Ioannou, EasyJet's founder and 15% shareholder, has remained silent, neither supporting nor opposing the bid. Without his backing, a shareholder uprising seems unlikely.
According to market analysts, the 625p offer does not constitute a knockout price. EasyJet's shares have not traded at that level since early 2022, but the airline is not in crisis. Its balance sheet is solid, with assets valued at £5bn, including 208 owned aircraft and landing slots. The long-term upside potential is considered well above 625p once market conditions improve.
Bid Structure Concerns
EasyJet's board also questioned the deliverability of Castlelake's proposal, citing EU ownership rules that require European airlines to be majority-owned by EU investors. Castlelake's plan involves an EU partner company led by two EU nationals holding majority voting control, while Castlelake retains economic ownership. EasyJet described the structure as "opaque" and raised doubts about its compliance with EU regulations.
Castlelake has legal opinion supporting its approach, but the board remains unconvinced. The bidder has indicated it would support EasyJet as a stronger European airline and sustain its network, suggesting no break-up plans. However, the focus remains on price and shareholder support.
Outlook
This year's profits are expected to be weak due to geopolitical tensions, but EasyJet's medium-term target of £1bn remains intact. The board believes the offer undervalues the company, especially as the outlook improves. Castlelake faces a Friday deadline to formalise its bid or walk away, needing Stelios' support to gain traction.
