Private equity firm Castlelake confirmed it had proposed a £4.7 billion or 625p per share offer for easyJet (LON:EZJ). However, despite the implied premium, shares in the low-cost carrier failed to take off, gaining just a few percent.
Substantial premium
Castlelake, backed by US investor Brookfield Asset Management (NYSE:BAM), has now made three offers for the airline. As with its previous proposals, pitched at 560p and 600p, the board rejected the latest approach without engaging further.
The 625p offer represents a 59% premium to the close on 28 April, the day before Castlelake’s interest became public. It also represents the highest price for easyJet shares since February 2022 and a premium to the highest analyst target price.
As well as a cash offer, Castlelake is proposing a partial equity alternative to give easyJet shareholders continued ownership. The firm says it aims ‘to support easyJet as a stronger, more resilient European airline under European control’.
Answering the EU ownership question
Regarding EU ownership requirements, other regulatory approvals and financing, Castlelake revealed more details of its proposal. These include partnering with Peter Bellew and Mark Breen, who would own a controlling shareholding through an EU company.
Bellew was the former COO (chief operating officer) of easyJet before taking up the same role at Ryanair in 2020. He is is also the founder and managing partner of airline and airport investment firm Dook Capital.
Mark Breen is currently CEO of Oneiros Aerospace, and was previously an executive at Arajet and Oman Air. Like Bellew, Breen is based in Ireland and an EU national, meaning the duo can own a majority share in easyJet.
This proposed structure is ‘consistent with structures adopted by a number of other European airlines that are subject to the same EU ownership rules as the Company’, said Castlelake. The firm added its proposal was ‘a clear, deliverable solution to ensure compliance with all applicable regulatory requirements’.
Traders and commentators were expecting a major pop in easyJet shares this morning. Instead, the stock has barely lifted off, with a gain of just a few percent.
That suggests investors see little propspect of Castlelake succeeding. EasyJet itself has issued a statement, once again calling the proposal ‘highly opportunistic’ and claiming it undervalues the business.
Admittedly, the Middle East conflict has impacted airline valuations. However, saying the shares are cheap is a big claim given the volatility of earnings over several economic cycles.
EasyJet is touting a medium-term pre-tax profit target of over £1 billion, driven by growth in its Holidays business. It’s also promising cost efficiencies through technology gains and further fare ‘premiumisation’.
Maybe in time it will achieve its target, in which case today’s price will look cheap and the board will be vindicated. On the other hand, there’s a long list of companies who have turned down offers only for shareholders to rue the decision.
Read the press release here: https://corporate.easyjet.com/home/default.aspx
