EasyJet investors are holding out for at least £600m more from Castlelake, the US private equity firm whose repeated takeover approaches have been rejected by the budget airline.
Shareholders in the FTSE 250 carrier have made clear they will not entertain any offer unless it reaches at least £7 per share, which would value the airline at £5.3bn.
Castlelake has now had three bids rejected by EasyJet, with its most recent offer pitched at £6.25 per share, implying a valuation of £4.7bn for the airline.
“I think they’ll engage if the price is at seven plus. If you look at the book value of the fleet, the holiday business, the price should be nearer seven than six,” one large investor in the firm told the Financial Times.
The private equity firm’s £6.25 offer was turned down by EasyJet on Saturday, but Castlelake moved on Monday to take its proposal public, urging shareholders to pressure the airline’s board to engage.
Castlelake has argued that its latest offer “substantially de-risks the execution of the Company’s business plan,” framing the bid as a positive step for the carrier’s long-term outlook.
EasyJet’s board, however, has accused the bidder of attempting to acquire the airline “on the cheap,” insisting that its approaches fail to reflect the firm’s “position of strength.”
A second shareholder suggested the board is “probably thinking about in theory what their valuation could be in two to three years,” adding: “I’m sure they could do some maths and get quite a lot higher than 625p.”
One investor said they were “surprised” that EasyJet had not yet engaged with Castlelake, stating: “My sense is that your job is to engage in these sorts of areas.”
EasyJet is planning to meet with several shareholders in the coming days to gauge their reaction to Castlelake’s latest proposal, according to the Financial Times.
Castlelake has pointed out that EasyJet’s shares have not traded at £6.25 since February 2022, while the stock fell one per cent at Tuesday’s open to £5.13.
Richard Hunter, head of markets at stockbroker Interactive Investor, said EasyJet has “made it quite clear” that Castlelake’s previous approaches have undershot their expectations, warning: “As the end of the runway approaches, it seems that Castlelake may need to improve their offer.”
Hunter also noted that the regulatory requirement for EasyJet to remain majority-owned by EU citizens “complicates” any potential deal, adding a structural hurdle to an already difficult negotiation.
It has previously been speculated that Castlelake could partner with a European airline to satisfy ownership rules, though British Airways owner IAG said last week that competition regulations would make participation “very difficult.”
Russ Mould, investment director at stockbroker AJ Bell, said “it is easy to see” why Castlelake would pursue EasyJet, because the airline “looks cheap compared to a basket of European competitors.”
Mould cautioned that “easyJet’s shareholders will be wary of selling too cheaply,” adding that “it is unlikely that the valuation numbers will escape the attentions of easyJet’s founder, Sir Stelios Haji-Iannou, who may prove unwilling to sell his stake in the absence of a very, very generous premium to the undisturbed share price.”
EasyJet declined to comment.