EasyJet shares rose by more than 5% on Thursday after the airline's board said it had rebuffed a fourth takeover approach from U.S. investment firm Castlelake, L.P., while consenting to give the bidder restricted commercial information and to lengthen the takeover timetable.
The submission, received on June 23, put a cash value on EasyJet at 650 pence per share and included a partial alternative offering that would permit shareholders to elect to receive unlisted, non-transferable, non-voting shares in a vehicle within Castlelake's corporate structure.
This was Castlelake's fourth overture for EasyJet. Earlier offers of 560 pence, 600 pence and 625 pence per share had already been presented and rejected - the latter two having been described by the board as unanimously rejected because they were not in the best interests of shareholders.
According to EasyJet's statement, Castlelake has indicated it hopes that access to limited commercial information will enable it to put forward an improved proposal. Nonetheless, the board said it continued to regard the Fourth Proposal as substantially undervaluing the company and its prospects and said the offer raised significant questions regarding deliverability. The board said it unanimously rejected the proposal.
Despite that rejection, EasyJet's directors agreed that providing constrained access to commercial data could produce a more attractive proposal that better reflects the airline's value and prospects. The statement reiterated the board's concerns about the proposed ownership structure and the practical deliverability of any Castlelake offer, noting that the time required to satisfy conditional requirements could have a consequential and meaningful impact on the present value of the offer price.
The proposed bidding vehicle would be held 49% by Castlelake and co-investors, which the statement named as including Brookfield Asset Management Ltd., with the remaining 51% to be owned by EU nationals including Peter Bellew and Mark Breen.
The Panel on Takeovers and Mergers agreed to a nine-day extension of the Put Up or Shut Up deadline. Under the extension, Castlelake must, by 5:00 p.m. on Sunday, July 5, either announce a firm offer under Rule 2.7 of the UK Takeover Code or confirm it does not intend to proceed with a bid.
EasyJet described itself as "in a position of strength," citing a net cash position and a target of more than 1 billion in profit before tax.
Key points
- EasyJet's board rejected Castlelake's fourth proposal, received on June 23, which valued the company at 650 pence per share in cash with a partial alternative in unlisted, non-transferable, non-voting shares.
- The board has allowed Castlelake limited access to commercial information and secured a nine-day extension of the Put Up or Shut Up deadline to 5:00 p.m. on Sunday, July 5, with the Panel on Takeovers and Mergers' consent.
- The bidding vehicle would be 49% held by Castlelake and co-investors including Brookfield Asset Management Ltd., and 51% by specified EU nationals including Peter Bellew and Mark Breen.
Risks and uncertainties
- Deliverability concerns - The board flagged significant questions over the practicality of delivering any Castlelake offer, which could affect whether a transaction can be completed. This impacts the airline and broader M&A market participants.
- Ownership structure - The proposed split of ownership between Castlelake and EU nationals raised concerns with the board, creating uncertainty around regulatory and governance outcomes if an offer proceeded. This affects investor confidence in the airline and potential co-investors.
- Time to satisfy conditions - The board warned that the time required to meet any offer conditions would reduce the present value of the offer price, introducing valuation risk for shareholders and market participants.
The company's statement stressed its financial position, citing net cash and a target of more than 1 billion in profit before tax, while the board maintained that the Fourth Proposal substantially undervalued EasyJet and posed deliverability questions.