EasyJet (EZJ.L) shares jumped over 10% in early morning trading on Monday after the company entered into an agreement in principle with Castlelake regarding a potential privatization transaction.
The British low-cost airline said Sunday its directors agreed on the key terms of an indicative takeover proposal of 6.90 pounds sterling per share in cash, with an alternative partial option for unlisted shares. It noted that the financial terms of the alternative investment firm’s offer are at a value that its directors could recommend to shareholders, having already rejected four indicative offers from Castlelake, with the last one at 6.50 pounds per share.
As part of its fifth indicative proposal, Castlelake committed to a “best endeavors” condition, particularly in the collaboration to secure necessary regulatory approvals for the transaction. The offeror also committed to supporting the airline’s growth strategy and fleet modernization program.
Amid the commitments, Bernstein said Castlelake’s previous experience with aircraft leasing businesses is an indication of a break-up of easyJet, characterized by a separation of valuable assets.
“While Castlelake’s stated intention to support easyJet’s future growth and transformation, we however see the most likely eventual outcome for easyJet as follows: existing operations (in-service fleet, near-term deliveries, slots, easyJet Holidays) sold largely to the three European network carriers, and at least some of the orderbook finding its way to airlines outside Europe,” Bernstein commented in a quick-take note Sunday, adding that the move would benefit other European airlines, especially the low-cost carriers and UK-focused leisure business Jet2.
The agreement remains subject to the completion of due diligence, among other preceding conditions. At the request of easyJet’s board, the UK’s Panel on Takeovers and Mergers extended to Aug. 3 the deadline for Castlelake to submit a firm offer for the potential target. EasyJet cautioned that a formal offer is not guaranteed.
