EasyJet Takeover: Apollo Outbids Castlelake in £5.7 Billion Deal

British low-cost airline EasyJet has agreed in principle to a £5.7 billion takeover proposal from US private equity firm Apollo Global Management. This unexpected development follows EasyJet's recent announcement that its board was inclined to approve a £5.5 billion offer from rival US investment firm Castlelake, sending ripples through the aviation sector.

Apollo's offer to EasyJet shareholders values the airline at £7.15 per share in cash, surpassing Castlelake's latest proposal of £6.90 per share. This new bid represents a substantial premium of 80% to 81% on EasyJet's closing share price before Castlelake's interest first emerged last month. Furthermore, Apollo's offer includes a premium of approximately 22% compared to EasyJet's closing share price the previous day. The EasyJet board has described Apollo's proposal as a “superior outcome” for shareholders, indicating it is no longer minded to recommend the Castlelake proposal. Apollo has confirmed its commitment to taking “all necessary steps” to satisfy EU local ownership rules, which require airlines operating within the bloc to remain majority-owned by EU citizens, and intends to retain the EasyJet brand. Additionally, Apollo is offering shareholders the alternative to roll over their stakes into the vehicle through which Apollo's funds would hold their investment in the airline, allowing them to remain invested in EasyJet's future growth.

Following the news, EasyJet (LON:EZJ) shares surged by over 13-14% in early trading on the London Stock Exchange, reflecting investor optimism about the bidding war. Should the deal materialize, EasyJet is expected to delist from the London Stock Exchange. This move aligns with a broader trend of UK companies attracting private equity bids and subsequently delisting, as foreign investment firms seek opportunities in the British market. Apollo has until August 7 to make a firm offer, while Castlelake's deadline for its latest proposal was August 3.

The aviation sector has faced considerable challenges, including the lingering effects of the COVID-19 pandemic, geopolitical events such as the US-Iran conflict, and soaring fuel prices, which led EasyJet to report a £377 million loss in the first half of its financial year in May. Despite these headwinds, EasyJet's valuable airport slots, modern Airbus fleet, and expanding holidays business make it an attractive target within the industry.

Analysts had previously suggested that EasyJet's strategic assets could command a higher valuation, fueling expectations for further bids. This development could potentially ignite a full-blown bidding war between the two American investment firms. Apollo, with a significant portfolio in the aviation industry, including investments in Virgin Atlantic, Air France-KLM, Sun Country Airlines, Aeroméxico, Atlas Air, and Swissport, aims to continue EasyJet's existing growth strategy and enhance its low-cost carrier model. EasyJet founder Stelios Haji-Ioannou and his family, who own over 15% of the company, stand to gain an estimated £855 million if they choose to sell their stake. Apollo also intends to maintain the existing brand license agreement with Haji-Ioannou.