EasyJet backs $7.7 billion Apollo takeover bid over Castlelake offer

Apollo Global Management has made a £5.7 billion bid for easyJet, outbidding Castlelake and securing the airline's backing, setting up a potential takeover battle.

U.S. investment firm Apollo Global Management announced a £5.7 billion ($7.7 billion) bid for easyJet on Friday, trumping a rival offer from Castlelake and setting up a potential takeover battle for one of Europe's biggest airlines. EasyJet ‌said it would back Apollo's £7.15-a-share proposal, withdrawing support for Castlelake's £6.90-a-share offer, which the parties had agreed in principle only days earlier. "It's no surprise that a second suitor has appeared for easyJet,” said Chris Beauchamp, chief market analyst at investing and trading platform IG. "The potential for the business remains substantial despite the underwhelming performance of recent years."

Shares in the budget airline rose as much as 15% to £6.75 in early ‌trading, their highest since February 2022, though still below Apollo's offer price. Despite Castlelake's proposal on Sunday, the stock had remained well below the offer price amid investor concerns over regulatory hurdles. Castlelake ‌did not immediately respond to a request for comment outside regular U.S. business hours.

An easyJet investor, who requested anonymity, said it was "reassuring that multiple private investors can see the undervaluation in the shares that public investors have seen for some time". Questions remain over whether a buyer can satisfy European Union majority ownership requirements, a key hurdle for any non-EU acquisition of a European airline, analysts said.

Davy analyst Stephen Furlong, however, said both deals could ultimately gain regulatory approval, with ⁠the key ​question now becoming price. Apollo said it was committed to ⁠taking "all necessary steps" to secure any merger control and EU subsidies-related clearances needed to complete the deal.

It is also offering eligible shareholders the option to roll their stakes into the private vehicle that would buy easyJet, through which they would ⁠continue to own voting rights. "The proposed bid, not only increases the offer to shareholders but from an easyJet board perspective supports the airline’s current growth strategy," airline analyst John Strickland told Reuters.

Apollo plans to retain the airline's ​key staff to continue easyJet's strategy of expanding capacity and growing its holidays business. Castlelake has largely stayed silent on its specific plans for the airline beyond a broad commitment to ⁠support easyJet's fleet modernisation programme, which includes replacing older aircraft with larger, more fuel-efficient Airbus jets.

EASYJET, APOLLO CLAIM 'SUPERIOR OUTCOME' "The proposed cash offer delivers a superior outcome for easyJet shareholders by providing a higher cash value than Castlelake's latest proposal," easyJet and Apollo ⁠said ​in a joint statement.

Apollo must announce a firm offer for easyJet by August 7 or walk away. Castlelake has until August 3. Apollo also said it plans to retain the easyJet brand by continuing the existing licensing agreement between easyJet and founder Stelios Haji-Ioannou's easyGroup.

That may appeal to Haji-Ioannou, whose family is the airline's largest shareholder with a roughly 15% stake and receives a 0.25% ⁠royalty on easyJet's revenue for use of the "easy" brand. Haji-Ioannou declined to comment.

Castlelake went public in May with its interest in acquiring easyJet and was initially rebuffed four times by the ⁠airline's board. In late June, however, easyJet opened its books ⁠to Castlelake in an effort to draw a higher offer, signalling its willingness to sell at the right price. "While shareholders will cheer a bidding war that increases the windfall, the risk of piling on debt into the business as part of the process runs the risk of underperformance ‌in the future," said IG's Beauchamp.

($1 = £0.7447)