easyJet share price in focus as Apollo tables richer bid to outflank Castlelake

easyJet share price will be in the spotlight today as a new bid from a giant American private equity company emerged. The stock ended Thursday at 588p, a few points below the weekly high of 621p.

Apollo Global Management has placed a bid for easyJet

easyJet, one of the top discount airlines in Europe, is now involved in a bidding war that will benefit its shareholders. 

Apollo Global, one of the top players in the private equity industry with over $1 trillion in assets under management (AUM), has made a superior bid to the one made by Castlelake, which has $38 billion in assets.

Its new bid is for 715p a share, higher than Castlelake’s bid of $7.3 billion.

Apollo’s bid values the company at $7.7 billion, making it one of the biggest buyouts in the industry. In a statement, easyJet said:

“Given that Apollo’s £5.7 billion ($7.7 billion) bid is superior, easyJet is no longer minded to recommend the Castlelake proposal. The financial terms of the proposed cash offer are at a level that it would be minded to recommend to easyJet shareholders.”

Potential scenarios for easyJet

There are now three possible scenarios in this bid. Castlelake may decide to boost its offer so that it becomes bigger than Apollo’s. Alternatively, it may decide to abandon the deal altogether, judging that further fighting for the deal will not be worth it.

Another scenario is where another suitor comes in with a higher bid than Apollo’s. In all this, the main beneficiary will be easyJet’s shareholders, who will benefit as the value of their shares jumps. 

Still, any deal faces some minor challenges ahead, which explains why the easyJet share price has remained under pressure.

For one, any buyer will need to structure the acquisition to comply with EU ownership and control rules governing European airlines, potentially requiring European investors or partners.

Apollo has said it intends to satisfy those ownership requirements, although it has not disclosed the structure.

Also, regulators may question a leveraged buyout of a European company by an American private equity company. Historically, those buyouts have led to a surge in debt and potential layoffs. 

Still, these challenges will likely be addressed during talks with regulators, with the acquirer making some commitments. 

The most recent results showed that easyJet made a loss before tax of £552 million, even as the airline's revenue rose by 10%. Costs jumped by 5% because of the elevated jet fuel prices. The company ended the quarter with £4.7 billion of liquidity, including £434 million in net cash.

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