Castlelake's public pursuit of easyJet, after three rejected private offers, is a standard tactic to pressure the board by appealing directly to shareholders. With a 'put up or shut up' deadline approaching, the US investment firm disclosed its £4.7bn proposal at 625p per share, hoping to spark a shareholder revolt. However, easyJet's founder Stelios Haji-Ioannou, who with his family holds 15% of shares, has remained silent, neither supporting nor opposing the bid.
Market Scepticism Reflects Offer's Weakness
The stock market's tepid response—easyJet shares rose only 2% to 518p on Monday—indicates a lack of shareholder enthusiasm. The wide gap between the offer price and market valuation suggests the bid is not seen as compelling. Castlelake argues that easyJet's shares haven't traded at 625p since early 2022 and were at 464p before the Iran war, but the airline is not in crisis. Its balance sheet is solid, with assets valued at £5bn, including 208 owned aircraft and landing slots, providing downside protection and long-term upside potential.
Profit Outlook and Strategic Considerations
Despite a miserable profit outlook this year due to war fallout, easyJet's medium-term target of £1bn+ remains intact, supported by cost-saving programmes. While the horizon for that target is uncertain, the airline's earnings are historically volatile, and next year's outlook is brighter. Shareholders may be reluctant to accept a so-so offer when prospects are improving. Castlelake's bid structure also raises concerns about deliverability under EU ownership rules, which require European airlines to be majority-owned by EU investors.
Complex Ownership Structure Under EU Scrutiny
Castlelake's proposal involves an 'EU partner' company led by two EU nationals, including a former easyJet executive, holding majority voting control, while Castlelake and co-investors retain economic ownership. easyJet's board described the structure as 'opaque' and questioned its compliance with EU rules, noting that if such rules can be easily bypassed, their purpose is undermined. Castlelake has legal opinion supporting the structure, but the complexity adds risk.
What Castlelake Plans for easyJet
Castlelake stated it would 'support easyJet as a stronger, more resilient European airline' and 'sustain its network', suggesting no break-up. However, there may be scope for leasing aircraft, a core activity for the US firm. Ultimately, the bid's success hinges on price and shareholder support. At 625p, the offer is less than a full ticket, and without Stelios's backing, it lacks momentum.
