US Private Equity Firms Clash in Hostile Bid for EasyJet
Apollo and Castlelake, two American investment firms, are engaged in a public dispute over their competing offers to acquire the budget airline.
The competition to acquire the budget airline EasyJet has escalated into a public dispute between its U.S. private equity suitors. New York-based Apollo Global Management recently submitted a £5.7 billion offer, challenging a £5.5 billion bid from fellow American firm Castlelake.
EasyJet's board initially favored the Castlelake offer but reversed course Friday, stating they were "minded to recommend" Apollo's proposal. Apollo has until August 7 to formalize its bid under City takeover regulations.
Sources close to Apollo expressed confidence that investors would favor their offer, claiming it avoids "financial engineering" they allege characterizes Castlelake's bid. This term can refer to the complex use of financial mathematics, sometimes criticized for obscuring risks.
Speculation suggests Castlelake, which already owns a substantial aircraft fleet leased to other airlines, might seek to acquire EasyJet's fleet and lease it back to the company. A source close to Castlelake dismissed Apollo's claims as a "stretch" and criticized Apollo for not yet disclosing its financing details. The source questioned Apollo's stance, noting their own sophisticated financial practices.
EasyJet founder Stelios Haji-Ioannou, whose family holds a 15% stake in the airline, has yet to publicly declare his intentions. Apollo's announcement indicated they would maintain the brand licensing agreement with Haji-Ioannou's EasyGroup, an arrangement that reportedly earns him approximately £25 million annually. This has fueled speculation about potential tacit backing from the founder.
While Haji-Ioannou's support is not strictly necessary for a takeover if other shareholders approve, analysts believe his endorsement could significantly influence the outcome due to his founder status. His backing could also be vital for securing approval from European regulators, as EU aviation rules require airlines operating significantly within the bloc to be majority-owned by EU nationals.
Concerns have been raised that a private equity takeover could lead to increased fares and higher costs for ancillary services like checked baggage and seat selection, as new owners aim to maximize profits. Some analysts also anticipate potential reviews of less profitable routes and flight frequencies to improve profit margins.