EasyJet has rejected a takeover approach from rival Wizz Air and is launching a £1.2bn fundraising to see it through a slow recovery from the coronavirus pandemic.
The budget airline said it had “received an unsolicited preliminary takeover approach” but that it was unanimously rejected by its board.
EasyJet did not name the bidder, reported by Bloomberg to be low-cost rival Wizz Air. The Hungary-based carrier has targeted rapid expansion and the idea of a possible merger between the two carriers was floated by industry observers last winter. EasyJet said the bidder was no longer considering an offer.
The latest cash call means easyJet has asked shareholders for more than £1.6bn during the pandemic, after it raised £450m in a rights issue last year to shore up its cash reserves. EasyJet said on Thursday it needed to raise more cash to see it through a potentially drawn-out recovery, and it may not recover to pre-pandemic levels until 2023. It said UK domestic travel was already above 2019 levels, although it expected to carry only 57% of 2019 passenger numbers during the last three months of 2021.
However, the Luton-based airline also said the money would allow it to buy up slots at airports vacated by other airlines, particularly in western Europe.
Its shares fell 9% on Thursday morning, making easyJet one of the biggest fallers on the FTSE 250. Other stocks in the sector were affected, with British Airways’ owner, IAG down 3% while the travel group Tui dropped 2%.
The buyout offer means easyJet is the latest in a series of FTSE 250 firms that has been the subject of takeover interest in recent months. Some analysts have suggested that UK equity markets are systematically undervaluing British companies, allowing a series of bids for firms including the aerospace manufacturers Meggitt and Ultra Electronics.
The offer was quickly rejected. Johan Lundgren, easyJet’s chief executive, said the board had “no hesitation” in rejecting the offer but declined to identify the bidder. Wizz Air has declined to comment.
“The indicative proposal took the form of a low premium and highly conditional all-share transaction which, in the board’s view, fundamentally undervalued the company,” easyJet said on Thursday.
Lundgren said no shareholder, including the airline’s founder and biggest shareholder Sir Stelios Haji-Ioannou, had been notified of the bid. However, he said the rights issue had been discussed with major shareholders. Existing shareholders will be offered 31 shares for every 47 they own at a discount of 36% to the expected market price.
The £1.2bn easyJet expects to raise will be both “offensive and defensive”, Lundgren said, according to how the pandemic evolves. The money would allow it to survive a worst-case scenario of new variants affecting travel in summer 2022 as badly as this year, or allow it to expand and seize opportunities should growth resume.
Lundgren suggested easyJet would target BA slots at Gatwick should the national carrier fail to launch its proposed lower-cost subsidiary, as well as at Orly and Amsterdam. “We see retrenchment of legacy carriers … across the network these opportunities are showing themselves.
“Clearly that would make sense if the conditions are right … it would be very little risk.”
Lundgren said growth was faster in Europe and hit out at UK government policy on passenger testing: “We’re flying intra-European 73% of 2019 … in the UK capacity is 32%, which is down to the expensive PCR testing and the confusion that exists around the restrictions.”
The airline’s £1.2bn fundraising drive will be accompanied by a new $400m (£290m) lending facility available for at least four years.
The aviation sector has struggled with a slow recovery in international travel amid the spread of the infectious Delta variant, even as economies have bounced back. In the six months to the end of March, easyJet made a loss before tax of £701m.