EasyJet Rejects Castlelake's £4.7 Billion Takeover Bid

British low-cost airline EasyJet (EZJ) has rejected a takeover proposal valued at approximately £4.74 billion from US-based investment firm Castlelake. The EasyJet board announced it would not accept Castlelake's third offer of 625 pence per share, which was submitted on June 21. Following the rejection, Castlelake has decided to take its proposal directly to the airline's shareholders, citing the EasyJet board's "unwillingness to engage meaningfully."

Castlelake had made three distinct offers to acquire EasyJet this month. The initial proposal was for 560 pence per share, followed by 600 pence, and the latest at 625 pence per share. However, the EasyJet board dismissed all of these proposals during a meeting on June 21. EasyJet had initially characterized Castlelake's approach on June 1 as "highly opportunistic." The airline argues that its share price is "temporarily depressed" due to the impact of the Middle East conflict on customer confidence and jet fuel prices. Castlelake, for its part, holds a 2.14% stake in EasyJet through funds it manages.

Upon the initial news of Castlelake's interest on June 1, EasyJet shares surged by 10% to 12% on the London Stock Exchange, reaching a three-month high. Nevertheless, the overall market reaction has been described as cautious, reflecting investor skepticism regarding the deal's likelihood of success. Castlelake's latest offer represented a premium of approximately 59% over EasyJet's closing price on May 28 and a 71% premium compared to the airline's interim trading update in April. Prior to the bid interest, EasyJet shares had fallen by about 30% over the past year.

This takeover attempt comes at a time when the aviation sector is in recovery but still faces pressures from fuel costs, economic fluctuations, and geopolitical risks. Specifically, the Middle East conflict has negatively impacted EasyJet's first-half financial performance, leading the airline to forecast a wider loss and putting pressure on its valuation. As a US-based fund, Castlelake announced it has partnered with EU national investors, Peter Bellew and Mark Breen, to navigate UK ownership rules that require airlines to be majority-owned and controlled by EU or UK nationals to retain their operating licenses.

The UK Takeover Panel has set a "Put-up or Shut-up" deadline for Castlelake at 5 PM on Friday, June 26. By this time, it will become clear whether Castlelake intends to make a firm offer for EasyJet or withdraw its interest. While the EasyJet board maintains confidence in its strategy and ability to deliver attractive long-term value for shareholders, Castlelake's direct appeal to shareholders suggests that investor sentiment will be a crucial factor in the coming days.