Takeover bid for EasyJet rejected with airline looking to raise funds
EasyJet has rejected a takeover approach and announced plans to raise £1.2bn from shareholders to help its recovery from the pandemic.
The airline said the unsolicited bid undervalued the company and the unnamed suitor was now no longer interested.
EasyJet plans to raise £1.2bn through a rights issue. 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 be used to strengthen the balance sheet and allow the group to invest following changes to the airline industry during the pandemic. Proposed plans include upping its presence at major airports, increasing revenue per-seat through ancillary revenues (things like extra legroom, bag fees and food), and expanding EasyJet holidays.
The airline has already raised emergency funds during the crisis, having been affected by Covid-related travel restrictions.
The company said on Thursday it was “well-placed to emerge from the pandemic”, but the additional cash would provide a buffer should further coronavirus-related lockdowns delay the airline’s recovery.
It has lost more than £2bn as many flights were grounded during the coronavirus crisis and it slumped to its first-ever loss in its 25-year history as a result.
However, EasyJet saw August travel improve nearer to pre-pandemic levels, but capacity in the final quarter is expected to be about 57% of 2019 levels.
Shares at the company were down 10.5% following the announcement.
Laura Hoy, Equity Analyst at Hargreaves Lansdown, commented: “easyJet is asking shareholders to open their wallets to get the low-cost airline through year’s worth of unprecedented turbulence.
“The pandemic’s expected to continue weighing on capacity in the year ahead as the delta variant continues to spread. While nation-wide lockdowns may not resume in earnest, people are likely to start policing themselves this winter by avoiding risky travel and large crowds.
“The decision to raise new capital sent shares on a nosedive. Alongside forecasts for capacity of roughly 60% over the next six months, it suggests easyJet has a hard winter ahead.
“We’re not the only ones to see easyJet’s struggle. The group reported an unsolicited takeover offer, which was promptly rejected. 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.”