EasyJet Takeover Battle Intensifies as US Private Equity Firms Trade Barbs
Apollo and Castlelake, both US private equity firms, are engaged in a public dispute over their competing bids for the budget airline.
The contest for control of EasyJet has escalated into a public dispute between its private equity suitors, with two American firms trading accusations over their takeover offers.
New York-based Apollo recently submitted a £5.7 billion bid for the carrier, challenging an earlier £5.5 billion offer from fellow US firm Castlelake. EasyJet's board, which had initially supported the Castlelake proposal, announced Friday they were now "minded to recommend" Apollo's offer to shareholders. Apollo has until August 7 to formalize its bid under City takeover regulations.
Sources close to Apollo expressed confidence that their proposal would be more favorably received by investors, asserting it lacks the "financial engineering" they claim characterizes Castlelake's offer. Financial engineering can involve complex mathematical methods to address financial challenges, but can also be used to obscure risks or consequences.
Speculation has suggested that Castlelake, which already owns and leases approximately 375 aircraft to airlines like Etihad and Qantas, might utilize its control of EasyJet to acquire the budget airline's own fleet and subsequently lease it back to the company.
A representative for Castlelake responded by stating they were "surprised" by Apollo's comments and described the allegations of financial engineering as "a bit of a stretch." They also pointed out that Apollo had yet to disclose the financing details for its takeover. "That assertion is based on nothing and last time I checked Apollo were pretty 'sophisticated' themselves," the representative added. "It's a pretty odd line for them to go down."
EasyJet founder Stelios Haji-Ioannou, whose family holds the largest shareholder stake at 15 percent, has yet to formally declare his intentions. Apollo noted in its offer announcement that it would maintain the existing brand licensing agreement between EasyJet and Haji-Ioannou's EasyGroup vehicle if its bid is successful. This agreement reportedly generates about £25 million annually for the businessman.
Analysts suggest that while Haji-Ioannou's endorsement is not strictly necessary for a takeover if other shareholders approve, his decision could significantly influence the outcome of the bidding war. His support may also be critical for gaining approval from European regulators, who mandate that airlines operating significantly within the EU must be majority-owned by bloc nationals.
The potential shift to private equity ownership has raised concerns among travelers about possible increases in airfares and fees for ancillary services like checked baggage, seat selection, and priority boarding, as new owners may seek to maximize profits. Additionally, there is speculation that less profitable routes or flight frequencies could be reviewed as part of cost-cutting measures.