EasyJet is set to become the latest British company fall into foreign hands after reaching an agreement in principle to a proposed takeover worth up to £5.5 billion from US suitor Castlelake.
The Luton-based carrier said on Sunday the £6.90-a-share approach, the fifth from the US investment firm, was “at a value that the board would be minded to recommend to easyJet shareholders” should a formal offer be tabled.
Castlelake now has until 5pm on August 3 to make a firm bid for easyJet or walk away under City takeover rules after easyJet requested for the offer deadline to be extended.
Shares in easyJet jumped more than 10% in early trading on Monday as the firm looks set to finally succumb following a determined pursuit from the private credit company.
If finalised, it will mark yet another overseas takeover for a UK company, following Tate & Lyle’s recent £2.7 billion takeover by US-based competitor Ingredion, as well as William Hill owner Evoke’s £243.1 million acquisition by Greek gambling firm Bally’s Intralot and London-listed Intertek’s £9.5 billion buyout by Swedish investor EQT.
EasyJet has rejected four previous proposals from Castlelake, with the most recent approach at £6.50 a share last month, valuing the firm at £4.93 billion.
Castlelake’s previous proposals were worth £6.25 a share and £5.60 a share and £6 a share.
The latest is worth £5.23 billion, or £5.5 billion on a fully diluted basis.
Until now, easyJet has batted away Castlelake’s interest, claiming it was trying to buy the firm “on the cheap”.
But on Sunday, easyJet said Castlelake had given some assurances to allay easyJet’s concerns over its acquisition plans.
EasyJet said: “In connection with the fifth proposal, Castlelake has confirmed that it would agree to a ‘best endeavours’ commitment in any cooperation agreement to obtain any regulatory clearances and approvals required to consummate the transaction.
“In discussions between the parties, Castlelake has emphasised its tremendous respect for easyJet and its people, along with its intention to support its future growth and transformation to a stronger, more resilient European airline for the benefit of all stakeholders if the transaction proceeds to completion.
“Castlelake is supportive of easyJet’s fleet modernisation programme, which it regards as central to the Company’s long-term competitiveness, efficiency and sustainability objectives.”
A formal offer is now subject to “customary pre-conditions”, such as due diligence and the agreement of offer documents, easyJet said.
Chris Beauchamp, chief market analyst at investing and trading platform IG, said: “Castlelake’s pursuit of easyJet is ending the way we knew it would, the board having satisfied honour by getting the bidders to boost their original offer.
“While a decent premium to the lacklustre trading of recent years, it still represents a deep discount to the share price of the late 2010s, a sign of how in need easyJet is for someone to take the controls and plot a more successful flightpath.”
EasyJet was founded by Sir Stelios Haji-Ioannou in 1995 to offer a low-cost alternative to British Airways and it has since expanded to one of the largest networks across Europe.
Sir Stelios is set to net a windfall from any sale, as he still owns more 15% of the firm, along with his family.
The takeover plans comes at a time when its share price has been pushed lower by worries over the impact of the Iran war on the airline sector.
The FTSE 250 firm’s shares had fallen around 30% in the past year, before news of the bid interest, while the stock has not recovered to the levels seen before Covid struck.
EasyJet has said it is focused on a target to deliver more than £1 billion in pre-tax profits in the medium term with plans to focus on expanding its fast growing package holidays arm.
Led by executive chairman and founder Rory O’Neill, Castlelake and has assets under management worth 36 billion US dollars (£27 billion).
It entered talks in January with bankrupt US carrier Spirit Airlines over a possible takeover.
Castlelake has also previously bailed out collapsed Scandinavian Airlines (SAS) and then sold its shares to Air France-KLM.
