- Report claims BA-owner could launch a bid
- EasyJet stock at lowest in more than a decade
- Wizz Air has shown interest in EasyJet in the past
Discount airline EasyJet (EZJ) was one of the biggest gainers on the FTSE All-Share index after weekend reports suggested that it has emerged as a takeover target of British Airways-owner International Consolidated Airlines (IAG).
Shares in EasyJet were trading more than 6% higher in early deals at 348p, valuing the FTSE 250 business at about £2.8 billion.
Shares In IAG rose 4% to 119.6p.
Russ Mould, investment director at AJ Bell, believes a deal would make ‘perfect sense’ for IAG.
The pandemic has created concerns about the future of business travel, with companies globally realising they don’t need to hold so many meetings in different locations. ‘It’s far easier, cheaper and more environmentally friendly to hold many conversations over Teams or Zoom than get on a plane,’ said Mould.
IAG, which has traditionally relied on business travellers, is having to rethink its revenue pathways given doubts about whether business travel will ever match pre-Covid levels. ‘Owning EasyJet would significantly boost IAG’s position in the leisure market and give it access to many prized airport landing slots,’ said the AJ Bell investment director.
DECADE LOW SHARE PRICE
Shares in EasyJet earlier this month traded at their lowest levels since 2011, which is the market’s way of saying it believes the company’s recovery from the pandemic will be slow. That has encouraged rivals, and an opportunistic takeover now could net them an established operator at a knock-down price.
Others might argue that given the increasingly gloomy economic outlook, launching a takeover would be high-risk and could cause disruption to earnings over the next few years. There also remains funding challenges for IAG.
The airline is already ladened with large debts, about £11.7 billion worth as of June 2022, and shareholders may want the airline to concentrate of paying down those borrowings before saddling itself with billions more.
IAG reported interest could also draw alternative offers for EasyJet. Wizz Air (WIZZ) has been linked as a potential suitor for EasyJet in the past and there is also logic behind a tie-up of those two companies. ‘Eastern Europe-focused Wizz Air could strengthen its position in Western Europe by owning EasyJet,’ said Mould. Others might also decide to make a move on the low-cost airline, Mould believes.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) owns shares in AJ Bell.
