easyJet shares soared 11% on news of a potential $7 billion deal

Shares of British low-cost carrier easyJet soared more than 11% during trading in London on July 6. Over the weekend, the airline announced that it had tentatively agreed to a takeover bid from the U.S. investment firm Castlelake. The deal is valued at 5.5 billion pounds ($7.34 billion). It could bring an end to protracted negotiations and reshape the European aviation sector, according to Reuters.

During trading on July 6 on the London Stock Exchange, easyJet’s share price rose to 6.21 pounds per share. The day before, on July 5, the low-cost carrier’s management announced its willingness to accept an improved takeover bid from Castlelake, an aviation lender and lessor, offering 6.9 pounds per share. The board of directors is prepared to recommend that shareholders approve the merger; however, the investment fund has until August 3 to formally confirm its purchase intentions, according to an easyJet statement.

Castlelake’s new offer price represents a premium of nearly 24% over the stock’s closing price on Friday, July 3. Compared to May 29—the day the U.S. fund disclosed its interest in the low-cost carrier to British regulators—the premium stood at 73%.

The potential acquisition of easyJet by an American investment fund is taking place during a challenging period for the aviation industry, Reuters reports. Due to the war in Iran, airlines around the world have faced sharply rising fuel prices and pressure on profit margins. The situation is further complicated by the fact that the low-cost carrier, which operates flights in 38 European countries with a fleet of 355 aircraft, has been struggling to recover from the COVID-19 pandemic. However, its package tour business and its efficient fleet of Airbus aircraft have remained bright spots for growth, Reuters notes.

Facing fierce competition from its main rival, Ryanair, easyJet has long been viewed as a takeover target, the agency reports. Its valuable takeoff and landing slots in London (Gatwick Airport), Paris, and Geneva make the company extremely attractive to investors, Reuters notes.

JPMorgan analysts have expressed concern about how Castlelake and easyJet’s board of directors plan to circumvent the European Union’s strict requirements regarding ownership structure, according to Reuters. Under EU rules, airlines operating within the bloc must be controlled and majority-owned by EU citizens.

easyJet noted that Castlelake has committed to “make every effort” to obtain regulatory approval. The fund had previously stated that it would hold only a 49% stake in the consortium acquiring the airline. The remainder will be divided between two EU citizens: industry executive Mark Brin and former easyJet COO Peter Bellew.

But even at a compromise price, shareholder approval of the deal is not guaranteed, according to JPMorgan. First, the position of easyJet’s founder and largest co-owner, Stelios Haji-Ioannou, remains unclear. Second, the possibility remains that competing bids could emerge or that other airlines might express interest in acquiring easyJet in parts.

The agreement between the parties was preceded by a series of unsuccessful attempts: easyJet had previously rejected four offers from Castlelake, viewing them as speculative attempts by the fund to buy up shares at a bargain price amid the crisis in the airline industry. Specifically, in June, the low-cost carrier rejected the fund’s £4.93 billion offer because it disagreed with the proposed management structure.

This article was AI-translated and verified by a human editor