US private equity firm Apollo enters bidding war for easyJet with £5.7bn offer

Airline’s board minded to recommend deal – after accepting rival one from Castlelake earlier this week

The board of easyJet has given the green light to a possible £5.7bn offer from the US private equity firm Apollo, as the low-cost airline becomes the subject of a surprise bidding war.

The company’s board said on Friday that it was “minded to recommend” the potential all-cash offer, which values the business at £7.15 a share, to shareholders.

Earlier this week, easyJet’s board agreed “in principle” to accept a £6.90 deal from Castlelake , after the US private equity firm upped its offer for the fifth time. However, analysts said that the offer, worth £5.5bn , undervalued easyJet.

On Friday, the airline’s board switched direction, to signal it would recommend Apollo’s approach. “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. “Accordingly, the easyJet board is no longer minded to recommend the Castlelake proposal.”

The latest offer also allows current shareholders – which include the founder, Stelios Haji-Ioannou, who still owns more than 15% of the company along with his family – to remain invested under Apollo’s ownership rather than being forced to divest when easyJet delists.

Apollo intends to keep in place an existing brand licence agreement with Haji-Ioannou under which he receives royalties from the airline.

If the £5.7bn bid were successful, the airline’s founder would be in line for an £855m payday if he chose to sell his stake. Haji-Ioannou has not commented on the attempts to buy easyJet.

The private equity firm signalled that it would back easyJet’s current strategy and management and was not looking 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 company said.

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

It has until 7 August to make a firm offer for the airline, whose shares jumped 14% on Friday morning, as investors welcomed the prospect of a bidding war.

Apollo said it would “take all necessary steps” to meet EU regulations on foreign ownership and made a “best endeavours” commitment to satisfy any other regulatory conditions.

Under EU rules European airlines must be majority owned by investors within the region, a rule that still applies to easyJet even after Brexit.

Castlelake announced a partnership with two investors in an effort to meet the requirements.

They are Peter Bellew, a former chief operating officer at Riyadh Air, easyJet and Ryanair and the former chief executive of Malaysia Airlines, as well as Mark Breen, the chief executive of Dublin-based Oneiros Aerospace, whose previous experience includes working for Oman Air.

In November, Apollo, which has its European headquarters in London, completed a $745m (£555m) financing of Virgin Atlantic’s portfolio of take-off and landing slots at Heathrow.

Apollo has made investments in the aviation industry including the US low-cost carrier Sun Country Airlines, Aeroméxico, Atlas Air and the logistics and handling operation Swissport.

The private equity firm provided €2.5bn (£2.1bn) in financing over an 18-month period to strengthen Air France-KLM’s balance sheet during the Covid pandemic, and in 2022 provided $700m in financing to support the restructure of Scandinavian Airlines.