- Castlelake increases its offer for EasyJet to 650p a share, compared to 560p initially
- EasyJet rejects the improved price, but may be amenable to a higher bid
- US investment group’s timing seems opportunistic
- Collapse in oil and jet fuel prices and rise in airline stocks may make it harder to win with a low-ball bid
“It is easy to see why American investment group Castlelake tried to pounce on EasyJet at the start of June, given how spring’s pair of profit warnings, an unhelpful macroeconomic backdrop and a diminished share price left the airline’s shares and valuation very depressed,” says AJ Bell investment director Russ Mould.
“An improved bid (a fourth overall) is yet to break EasyJet’s resolve to resist the predator’s overtures, but the agreement to open its books suggests that the target’s management may be open to a deal if the price is right. Although the airline’s founder, Sir Stelios Haji-Ioannou, will have a major say given his 15.3% stake.
Source: LSEG Refinitiv data
“EasyJet’s cautionary outlook statements from earlier this year cited higher fuel costs, thanks to the war in the Middle East, an increase in legal provisions and a decrease in visibility on customer bookings, as would-be holidaymakers ponder what to book and where in light of squeezed incomes and geopolitical turbulence.
“However, a ceasefire is – just about – holding in the Middle East as negotiations between Washington and Tehran continue, and the price of both oil and jet fuel is in retreat. It will be interesting to see if travel firms start to report any return of consumer confidence and a pick-up in bookings, and such trends would no doubt stiffen EasyJet’s determination not to sell at a knock-down price when its fortunes are at a low ebb.
“Castlelake’s fourth offer is 650p a share, compared to its initial forays at 560p, 600p and then 625p.
“The latest bid represents a 63% premium to EasyJet’s undisturbed share price at the start of this month. But the implied valuation suggests that Castlelake is not paying top dollar, at least once comparisons are made between EasyJet and a basket of European competitors, especially on the basis of price-to-book value (P/BV) and enterprise valued to invested capital (EV/IC).
Source: Company accounts, Marketscreener, analysts’ consensus forecasts, LSEG Refinitiv data. Book value based on last set of annual or interim results, defined as shareholders’ funds minus intangible assets. Invested Capital based on last set of annual or interim results, define as net working capital plus plant, property, and equipment (PP&E) plus goodwill plus intangible assets. *Valuations for EasyJet based on the 650p-per-share offer price from Castlelake.
“This makes it clear just how shrewd and well timed the initial approach was. Shares in Wizz Air and IAG are up by 40% and 34% since then, and Air-France KLM and Ryanair are up by 19% and 11% respectively, helped by the lower oil price and hopes for a long-lasting cessation of military action in the Middle East.
“Valuations have moved up accordingly, across the board.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts, LSEG Refinitiv data. Book value based on last set of annual or interim results, defined as shareholders’ funds minus intangible assets. Invested Capital based on last set of annual or interim results, define as net working capital plus plant, property, and equipment (PP&E) plus goodwill plus intangible assets
“This is putting a little more pressure on Castlelake and potentially helping EasyJet’s hand in any future negotiations. It is unlikely the same numbers will escape the attentions of EasyJet’s founder, Sir Stelios Haji-Ioannou, either. He may prove unwilling to sell his stake in the absence of an even more generous premium to the undisturbed share price.
“Shareholders will also want clarity on how Castlelake, as a US-based investor, intends to satisfy EU regulations which prevent a non-EU owner from holding a majority share of an EU airline. The would-be buyer has thus far offered few details, barring the suggestion that it will own a 49% stake and the EU partners will own the rest.”
