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EasyJet shares nosedive as budget airline rejects takeover bid, launches £1.2bn raise

·4-min read
Passengers board an easyJet plane (PA Wire)
Passengers board an easyJet plane (PA Wire)

SHARES in easyJet nosedived by as much as 14% on Thursday as the budget carrier revealed it rejected an unsolicited takeover approach - reportedly from rival discounter Wizz Air.

The preliminary offer was conditional, all-share and “fundamentally undervalued” the company, EasyJet said in a statement without identifying the bidder.

It was rejected unanimously by the board and has been withdrawn.

The airline is instead pursuing a rights offering to raise £1.2billion in stock and debt as a buffer to recover from the devastating impact of Covid-19.

Participants will be offered 31 shares for every 47 they own, at a 35.8% discount to the expected market price following the issue. The group has also secured a new $400m credit facility.

The money will give easyJet resilience should the pandemic continue to push down passenger numbers over the next year.

EasyJet added that it will also help the firm “take advantage of long-term strategic and investment opportunities expected to arise as the European aviation market emerges from the Covid-19 pandemic”.

Proposed plans include upping its presence at major airports, increasing revenue per-seat through ancillary revenues (extra legroom, bag fees and food), and expanding easyJet holidays.

Representatives for Wizz Air and EasyJet declined to comment.

John Woolfitt, director of trading at Atlantic Capital Markets, said: “The rejection of a bid and instead pursuing a rights issue is a bold move.” EasyJet recovered to settle down 8.9% at 719p by mid-morning. The stock is down 14% this year.

Shares of Budapest-based Wizz, which is listed in London, slid 2.4% to 4857p.

Laura Hoy, of Hargreaves Lansdown, said: “It’s unclear who the suitor was, but we suspect the winds of change are coming to the beaten down airline sector and this could be the first rustling.

“There is some potential upside to consider. Legacy carriers may pare down some of their routes indefinitely, leaving space for easyJet to up its presence at major airports.

“The group couldn’t do this without an injection of cash and promised shareholders that at least some of the funds are earmarked for this purpose. It’s a risky move, particularly if the pandemic continues to drag on beyond the winter.

“However it’s sink or swim time in the aviation industry and the move could pay off if easyJet is able to expand its presence into more profitable routes.”

Russ Mould, investment director at AJ Bell, said: “Wizz Air looks a possible candidate to have made the bid given it is incredibly ambitious and EasyJet would provide it with much greater coverage of Western Europe, having already established a strong position in Eastern Europe.

“It is financially stronger than many of its rivals and owning EasyJet could turbocharge its growth.

“A US airline might also be interested in EasyJet given how that would facilitate geographical expansion at the click of a finger.

“And then there is International Consolidated Airlines which has talked about a desire to launch a low-cost airline operation. Rather than going head-to-head with EasyJet, why not simply own it?

“The risk with International Consolidated Airlines is that it is already sitting on massive amounts of debt and its shares are in the doldrums, so would EasyJet shareholders really want to take IAG paper?

“Finally, one cannot rule out Jet2 which is slightly smaller in market value than EasyJet (£2.5 billion versus £3.3 billion respectively), but strategically a sound fit.

“The competition authorities might have something to say about any UK airline looking to buy EasyJet, but that is part and parcel of takeovers these days.

“EasyJet is going cap in hand to shareholders instead and asking for money to put it in a stronger financial position to weather the current storm and support growth plans.

“Whereas the days of issuing new equity to raise more cash to see them through the pandemic are long gone for many companies, the airline sector continues to ask for more.

“Speculation there could soon be more relaxed rules around travelling outside the UK would suggest EasyJet’s rights issue is well timed. Get more cash now and take advantage of any boom in bookings potentially from the end of this month.”

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