Shares of easyJet jumped about 10% on Monday to a four-year high after the airline agreed in principle to accept a £5.5 billion ($7.3 billion) takeover offer from US investment firm Castlelake, potentially paving the way for one of the biggest deals in the European aviation sector this year.
The budget airline said on Sunday that it was prepared to accept Castlelake’s revised offer of £6.90 per share after weeks of negotiations and several rejected bids.
The companies have requested an extension to the deadline for formally completing the transaction.
The proposed offer values easyJet’s equity at £5.23 billion, rising to £5.52 billion on a fully diluted basis, and represents a 24% premium to the airline’s closing share price on Friday.
Castlelake now has until Aug. 3 to make a firm offer or walk away from the deal.
Improved offer ends weeks of negotiations
Castlelake, a Minneapolis-based investment firm managing about $37 billion in assets, has steadily increased its offer after easyJet rejected earlier proposals.
The firm initially approached the airline with a bid worth £5.60 per share before raising it to £6.50, an offer easyJet dismissed roughly 10 days ago, saying it substantially undervalued the business.
The latest proposal marks a significant improvement and could bring lengthy negotiations to a close.
EasyJet operates more than 350 aircraft across over 1,200 routes spanning 37 countries, making it one of Europe’s largest low-cost carriers.
The transaction would also deliver a substantial windfall for founder Stelios Haji-Ioannou, whose family continues to own more than 15% of the airline.
If completed, the deal could be worth nearly £800 million for the founder and his family.
Aviation pressures create a buying opportunity
The proposed takeover comes during a difficult period for the airline industry.
Airlines have been grappling with sharply higher fuel costs and pressure on profit margins following the conflict involving Iran, while weaker consumer confidence has also weighed on demand expectations.
Those concerns had pushed easyJet shares lower earlier this year before Castlelake disclosed its interest in acquiring the airline.
Since then, the stock has risen more than 40%, recovering losses suffered after tensions in the Middle East rattled airline shares.
easyJet’s shares are up about 20% this year.
Susannah Streeter, chief investment strategist at Wealth Club, said the recent weakness created an attractive opportunity for the private equity investor.
She said easyJet had endured a difficult few months amid geopolitical tensions and subdued consumer confidence, depressing its valuation despite the airline’s strong balance sheet, modern fleet, and expanding holidays business.
Castlelake, which has significant experience in aircraft leasing and aviation finance, appears to believe the market has undervalued those long-term assets.
Regulatory questions remain
Despite the agreement in principle, analysts cautioned that significant hurdles remain before the transaction can be completed.
JPMorgan analysts questioned how Castlelake and easyJet would satisfy European Union ownership rules governing airlines while also establishing an acceptable governance structure.
The views of founder Stelios Haji-Ioannou could also prove influential given his sizeable shareholding.
EasyJet said Castlelake has agreed to use “best endeavours” to secure all required regulatory approvals and clearances.
How private equity ownership could reshape the airline industry
If the acquisition proceeds, analysts expect private ownership to alter easyJet’s strategic direction.
Operating outside the scrutiny of public markets could give management greater flexibility to invest for long-term growth.
At the same time, private equity firms typically focus heavily on improving efficiency, reducing costs and boosting returns, potentially leading to changes across staffing, procurement and operational spending.
Some analysts have also suggested Castlelake could extract additional value from easyJet by combining its fleet with the firm’s aircraft leasing operations or eventually separating the airline’s holidays division into a standalone business.
The proposed acquisition also adds to growing concerns about overseas buyers targeting UK-listed companies at a time when London’s stock market has been losing listed firms to private equity and international acquirers.
Castlelake already has experience investing in airlines, having previously acquired a stake in Scandinavian carrier SAS through a debt restructuring.
It is currently in the process of selling that holding to Air France-KLM.
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