EasyJet backs Apollo’s £5.7bn takeover approach

EasyJet has thrown its support behind a rival £5.7 billion takeover proposal from U.S. private equity firm Apollo Management, putting one of Europe’s largest low-cost airlines at the center of a surprise bidding contest.

The Luton-based carrier said its board was “minded to recommend” Apollo’s all-cash approach, which values the company at £7.15 a share. The proposal tops an earlier offer from U.S. investment firm Castlelake, which easyJet had agreed to in principle only days earlier.

“The easyJet board has carefully considered the proposed cash offer together with its financial advisers and has unanimously concluded that the financial terms of the proposed cash offer are at a level that it would be minded to recommend to easyJet shareholders,” the company said, according to The Guardian. “Accordingly, the easyJet board is no longer minded to recommend the Castlelake proposal.”

EasyJet said Apollo’s bid would deliver “a superior outcome” for investors compared with Castlelake’s £6.90-per-share proposal. The BBC reported Castlelake’s potential offer was worth about £5.2 billion, while The Guardian reported it was worth £5.5 billion.

No deal has been completed. Apollo has until 5 p.m. on Aug. 7 to make a firm offer or walk away. Castlelake faces an earlier deadline of Aug. 3 to submit a binding bid.

EasyJet is among Europe’s biggest airlines, employing more than 19,000 people and flying about 1,200 routes across 35 European countries. The company had previously rebuffed a series of approaches from Castlelake, accusing the firm of trying to buy the airline “on the cheap.” Castlelake later raised its offer for a fifth time, after which easyJet’s board agreed in principle to accept it earlier this week.

Apollo’s approach changes the terms of the contest. The Guardian reported that the latest offer would allow existing shareholders to remain invested under Apollo’s ownership if the deal goes ahead, rather than requiring them to sell when the airline delists.

Apollo also signalled that it would support easyJet’s current strategy and management and was not seeking to break up the company.

“Apollo believes in easyJet’s existing strategy of evolving and strengthening the low-cost carrier model, most notably through upgrading the fleet, enhancing the ancillary and loyalty offering, and scaling holidays into a structurally differentiated earnings stream,” the firm said.

The company also praised easyJet’s workforce and leadership. “Apollo recognises the important contribution that easyJet’s management team, alongside easyJet’s employees, have made towards the company’s successes,” it said. “Apollo places a high value on people and believes that identifying and retaining key staff within the easyJet group will be of paramount importance.”

Any takeover would still face a significant regulatory hurdle. European Union rules require the airline to be majority-owned by EU citizens. Castlelake had proposed addressing that requirement by partnering with two EU nationals, businessmen Peter Bellew and Mark Breen, who would own an EU-based company with majority control of the airline.

EasyJet’s board has now shifted toward Apollo’s higher proposal, but the future of the airline remains unresolved until one or both bidders make formal offers.