(July 10): EasyJet plc received a fresh offer from private equity firm Apollo Global Management for 715 pence a share that beats a rival proposal from Castlelake LP, a surprise twist in the takeover saga that sets up a possible bidding war between the two US investment funds.
Given that Apollo’s £5.7 billion bid is superior, EasyJet is “no longer minded to recommend the Castlelake proposal,” according to a statement by the discount airline on Friday. With regards to Apollo’s bid, “the financial terms of the proposed cash offer are at a level that it would be minded to recommend to EasyJet shareholders,” it said.
The sudden arrival of Apollo as an interloper follows multiple rounds over the past month between EasyJet and Castlelake, which had continuously raised its bid to get talks going. It took Castlelake five attempts and an offer for 690 pence a share to convince EasyJet to open its books, and the investor now needs to determine if it can come back with an even higher figure to outrun Apollo.
Castlelake still retains a possible edge as it was granted access to EasyJet’s books following its latest, improved overture. The investment firm has also provided greater detail on its bid structure, with former EasyJet executive Peter Bellew forming part of a management duo that would hold the majority. The bidding group also includes Brookfield Asset Management Ltd.
EasyJet surged 15% to about 676 pence at the open in London. The shares haven’t traded at the level that Castlelake last proposed, suggesting that investors were holding out for an even higher bid.
At the level that Apollo is now offering, “a heroic cost restructuring and earnings inflection, far above what we currently forecast, would be required for the deal to make sense at this price,” said Alex Irving, an aviation analyst at Bernstein.
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Apollos sought to dispel concern that the airline would be broken up under a private owner, given the individual parts of EasyJet are more valuable than the entire business. The company said it “places a high value on people” and it will be important to identify and retain key employees across the EasyJet group.
“EasyJet management’s operational and commercial ambitions can be substantially accelerated via the access to incremental capital and longer-term business and strategic planning that a private company setting affords,” Apollo said.
Apollo said that it would seek to satisfy the necessary condition for overseas investors to control a European airline. Like Castlelake, Apollo is a US entity, which means it’s unable to gain full control of EasyJet because the airline operates under UK and European rules that require majority ownership and control by regional nationals. That means Apollo needs a European partner.
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According to Apollo’s proposal, shareholders in the airline will have the option to roll their existing stock into a so-called stub equity alternative through which the Apollo funds would hold their investment in the airline. Apollo’s offer will be funded through equity and debt facilities, with Barclays arranging the debt financing.
Both Castlelake and Apollo have experience in the aviation industry. Castlelake has financed aircraft leases and was previously a co-investor in Air France KLM’s takeover of Scandinavian carrier SAS. Apollo runs an aircraft and aviation financing business that includes a leasing, management, and finance company operating out of New York, Dublin and Singapore.
Combined, the Apollo aviation platform finances more than 360 commercial aircraft and more than 60 engines, according to the company.
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