In a surprise takeover, U.S. private equity firm Apollo has gatecrashed the bid by rival Castlelake, already agreeing to key terms for a possible cash offer. This potential deal breaks down to 715 pence per share, swaying the support of easyJet’s board, who are likely to encourage shareholders to accept the bid.
Apollo has outbid Castlelake with a 5.7 billion pound cash offer for easyJet
Rejection isn’t entirely unfamiliar to the U.S. investment company Castlelake, whose initial takeover offer of 4.93 billion pounds was turned down in June of this year, as the UK budget airline felt it was lower than deserved. However, it looked like easyJet was prepared to accept Castlelake’s revised 5.5 billion-pound offer earlier in the week.
The airline’s board had disclosed their satisfaction with the deal, stating it was a value they would be “minded to recommend” to easyJet shareholders.
The board only switched its support away from the global alternative investment firm Castlelake because Apollo swooped in with a much higher offer. Following the news of the 5.7 billion-pound deal, easyJet shares rose by 13%.
Susannah Streeter, chief investment strategist at Wealth Club, noted that:
“Apollo has caught the tailwind created by Castlelake’s bid and has now powered ahead, overtaking its rival with a bazooka of an offer that’s sent easyJet shares soaring again in trading today.”
She added that the market clearly believes the airline is worth considerably more than it was just a few weeks ago.
While the carrier has faced recent headwinds from high fuel costs, the appeal for investment lies in the rapidly growing holiday industry, with package holidays generating higher margins and more predictable revenues than standard airline tickets.
Despite the high-stakes battle, Streeter notes that, for passengers:
“it’s very much business as usual for now, with flights, bookings and loyalty schemes unaffected while any deal works its way through the regulatory process.”
For staff, the long-term picture is less clear, although Apollo has signalled confidence in the current management’s strategy rather than proposing radical changes.
Tensions remain high as the bidding war might not be over yet
Castlelake and easyJet had originally agreed on a final bid date of Aug. 3 for the provisional 5.5 billion pound offer. Now, following Apollo’s disruptive intervention, Castlelake has been given an extended deadline of Aug. 7 to return with a higher counter-offer.
This intense bidding war highlights a broader shift in modern investing, as international suitors continue to circle UK-listed companies whose long-term potential the public markets have yet to fully recognise.
“Private equity firms are increasingly identifying opportunities beyond the public markets, using patient capital to back expansion, acquisitions and operational improvements away from the scrutiny of quarterly earnings,” Susannah Streeter explained.
The sudden escalation in easyJet’s valuation clearly marks the airline’s strong market position and potential for long-term growth. It remains to be seen if Castlelake will issue a counter-offer before the amended Aug. 7 deadline.
