Shares in EasyJet (EZJ) descended 10% to 712p after the low-cost carrier launched a £1.2 billion rights issue to strengthen its balance sheet and capitalise on growth opportunities in the recovering European aviation market.
Buried within the statement was the news EasyJet recently rejected an unsolicited takeover approach and that the mystery bidder has since confirmed that it is no longer considering an offer for the budget airline.
RIGHTS ISSUE AND NEW RCF
Hard-pressed EasyJet is going cap in hand to shareholders via a £1.2 billion rights issue to put it in a stronger financial position to weather the current storm and support growth plans and has also agreed a new $400 million revolving credit facility.
Whereas the days of issuing new equity to raise more cash to see them through the pandemic are long gone for many companies, the embattled airline sector continues to ask for more as it grapples with subdued demand.
‘Since the onset of the pandemic, we have undertaken decisive and robust action to restructure our operations, addressed our cost base and secured our financial position, keeping our investment-grade credit rating,’ commented EasyJet CEO Johan Lundgren.
Noting that EasyJet has been rewarded with ‘immediate growth in demand when travel restrictions have been lifted’, he insisted this capital increase ‘will allow us to build on our fundamental operational strengths and network strategy for our customers as well as accelerate long-term value creation for our shareholders.’
MYSTERY BIDDER
Details are thin in terms of the bidder, but Russ Mould, investment director at AJ Bell, stressed we do know it was a listed business as the approach was structured as an all-share offer.
‘While the airline sector in general is still looking vulnerable, the best times to pounce on a rival is when sentiment is weak towards an industry,’ commented Mould.
‘Wizz Air (WIZZ) looks a possible candidate to have made the bid given it is incredibly ambitious and EasyJet would provide it with much greater coverage of Western Europe, having already established a strong position in Eastern Europe. It is financially stronger than many of its rivals and owning EasyJet could turbocharge its growth.’
Mould also suggested a US airline might also be interested in EasyJet given how that would facilitate geographical expansion at the click of a finger.
‘And then there is International Consolidated Airlines (IAG) which has talked about a desire to launch a low-cost airline operation. Rather than going head-to-head with EasyJet, why not simply own it? The risk with International Consolidated Airlines is that it is already sitting on massive amounts of debt and its shares are in the doldrums, so would EasyJet shareholders really want to take IAG paper?’
Although slightly smaller in market value than EasyJet, Mould added that Jet2 (JET2:AIM) cannot be ruled out as the bidder.
‘The competition authorities might have something to say about any UK airline looking to buy EasyJet,’ explained Mould, ‘but that is part and parcel of takeovers these days.’
