EasyJet flags takeover hurdles as Castlelake weighs bid

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EasyJet takeover hurdles

Highlights

Castlelake is considering a bid for easyJet and has acquired 2.14% of shares, but has not formally approached the company's board.
Any formal offer must exceed 403.2 pence per share, just a 2% premium over Friday's close, with Castlelake facing a June 26 deadline to submit.
European ownership rules complicate a takeover by a U.S. buyer, while easyJet's share price is down over 20% YTD and profit expectations have been cut.

Bid timeline and board response

As reported by Financial Times, Castlelake says it is in the early stages of considering a bid for easyJet and, as of its latest disclosure, has not approached the airline's board. On Monday, the investor also said it had acquired 2.14 per cent of easyJet's shares.

EasyJet says the possible bid is “highly opportunistic” because its share price is temporarily depressed by the current situation in the Middle East and the effect on customer confidence and fuel costs. The airline says it would consider any proposal if one is made, but warns that a takeover would face considerable regulatory, financial and execution challenges.

Under UK takeover rules, any formal offer would need to be above 403.2 pence a share, which Castlelake says represents only a 2 per cent premium to easyJet's Friday closing price. Castlelake has until June 26 to submit an offer under those rules.

Ownership rules and pressure on outlook

EasyJet's shares are down more than 20 per cent since the start of the year, leaving the company valued at about £3 billion. The carrier has also cut profit expectations for this year after being hit by rising fuel prices and delayed bookings linked to the Iran war.

European airline ownership rules, which still apply in the UK, require carriers to be majority owned by shareholders from within the region, a factor that analysts say could complicate any deal by a U.S. buyer. RBC Capital Markets analyst Ruairi Cullinane says the rules could at least make a Castlelake takeover more difficult if it acts alone, while Barclays analyst Andrew Lobbenberg says the rules are not explicitly enforced and points to Ryanair's EU ownership level as a precedent.

Even so, easyJet says it remains in a position of strength, supported by an investment-grade balance sheet, a net cash position, strong customer satisfaction and high employee engagement. The board says it remains confident in the group's strategy and in its medium-term goal of delivering more than £1 billion in profit before tax.

Our earlier article on Castlelake’s potential approach to easyJet explained that the investor was evaluating a possible bid while saying it had not contacted the airline’s board. We noted that the interest came as easyJet’s shares fell more than 20% this year, with rising fuel and energy costs linked to the Iran war weighing on the carrier’s outlook, and that UK takeover rules set a June 26 deadline to make a firm offer or walk away.

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