EasyJet’s top shareholders hold out for £5.3bn bid from Castlelake
Many large investors agree that private credit group’s offer must reach £7 per share
Top shareholders at easyJet are coalescing around a price tag of at least £5.3bn for the carrier after the airline’s board opened formal negotiations with US suitor Castlelake.
The airline rejected a fourth bid for £4.9bn — or £6.50 per share — from Castlelake, but has agreed to open its books with the hope that the US private credit group will raise its price. It said the latest offer “fundamentally undervalues” the airline.
Many of the large shareholders are in agreement that the price must reach £7 per share, or £5.3bn, to be sufficiently attractive.
“The view about [holding out for] £7 is largely consensus,” said one significant investor in the airline. Another, who is also in the top 20, said: “I don’t think [chair Sir Stephen] Hester will accept below £7. He’s very shareholder focused.”
Sam Ziff at Oldfield, one of its 15 largest shareholders, said: “As long-term shareholders, we think any acceptable offer would need to be significantly higher than today’s offer.”
He added: “We think the current proposal undervalues easyJet. The company owns a very attractive set of assets, particularly its slot portfolio and fleet; management has articulated credible medium-term profitability targets.”
Much of easyJet’s defence rests on the promise that the airline will significantly improve its profitability in the coming years, bolstered by new fuel-efficient aircraft and a rise in its holidays business.
About a fifth of easyJet’s shares are held by retail investors, who tend to be longer-term shareholders, while the company also has a significant number of UK investors, who are generally more focused on long-term ownership than US funds.
EasyJet rejected the first three bids, but has opened negotiations with Castlelake after the private credit group said it could raise its price if given more financial information. The carrier has pushed the deadline for a potential Castlelake offer back to 5pm on July 5, raising expectations that an agreement can be reached.
The board previously criticised the Castlelake offer as being opportunistic given the slide in easyJet’s share price since the start of the Iran conflict in late February. Since any deal would take months to close, the price offered must also reflect that easyJet shares will recover as the conflict recedes, investors believe.
One shareholder said easyJet had plenty of earnings recovery potential. The suitors were “using the current blip, aided by the headwinds around the Iran war, to make a bid at a time which is very good for them, but unlikely to be a good time to contemplate selling for a long-term shareholder”, they said.
Another significant shareholder said: “It’s interesting [easyJet are] now engaging as it means ‘here’s an offer that allows us [Castlelake] to speak to you’ and then they will come back with another offer.”
However, the investor said that shareholders may well accept an offer because of concerns that next year could be difficult for the airline, which has been hit by higher fuel prices after the Iran conflict.
Both easyJet and Castlelake have been engaging with some of the airline’s largest investors to gauge their thoughts.
The largest shareholder is Sir Stelios Haji-Ioannou, the founder and former CEO whose family owns 15 per cent. He also has a deal that pays royalties from the easyJet brand.
Castlelake has left the door open to current investors, such as Haji-Ioannou, to continue to hold stakes in the airline once private. The structure would allow the founder to keep his position and influence at the airline, in the hope this may help sway him to back the takeover proposal.
Haji-Ioannou has held discussions with both easyJet and Castlelake since the offer was announced last month, according to multiple people with knowledge of talks, but has repeatedly declined to comment on the deal so far.