On September 9, 2021, reports emerged that EasyJet (EZJ.L) has chosen to reject a takeover approach from Wizz Air. The takeover would have managed to create a low-cost airline that would rival Ryanair. EasyJet opted to raise $1.7 billion from its shareholders and go it alone in a sector that is currently struggling to recover from the pandemic.
EasyJet is yet to name its suitor, but a reliable source that is familiar with this matter told Reuters that it was Wizz Air (WIZZ.L). Wizz is also yet to comment on the matter. The airline said that the all-share approach mainly undervalued its business, and added the possible bidder had since said that it was no longer interested in the deal.
Without giving details, EasyJet Chief Executive Johan Lundgren told reporters:
“The approach was “highly conditional in its nature which made it very uncertain in terms of its deliverability.”
On its part, EasyJet said that the fundraising would strengthen its balance sheet should the coronavirus downturn continue and enable it to benefit from an expected recovery in Europe’s aviation market by, for instance, expanding its presence at major airports by buying more slots. Lundgren said:
“I believe this is a once-in-a-lifetime opportunity.”
During the pandemic, EasyJet sunk to its first-ever yearly loss and cut a staggering 4,500 jobs. Today, it wants to steal a significant market share from legacy carriers like Air France-KLM and British Airways owner IAG as they retract their short-haul operations.
But it faces major competition from Ryanair, which is the biggest budget airline in Europe and rapidly growing Wizz. Both of these airlines have recovered faster than EasyJet over the summer.
Wizz currently dominated eastern European destinations like Romania and Poland, while EasyJet is perfectly positioned in countries including Switzerland, Britain, France, Italy, and Germany. Adding onto their possible good fit, both also operate all-Airbus fleets.
EasyJet has a market cap of 3.33 billion pounds ($4.6 billion), while Wizz is worth 5.1 billion pounds. A senior industry source of the Wizz CEO said:
“EasyJet has always been a strategic target for Jozsef Varadi.”
Based on the passenger data acquired last year, when fewer people were traveling during the pandemic, a combination of the pair still lag Ryanair by nearly 20 million passengers.
Wizz’s approach came after its share price has outperformed EasyJet’s during the pandemic. Shares in Wizz had bounced back to pre-pandemic levels by November 2020 and reached an all-time high of 5,595 pence in March. The airline’s stock, on the contrary, had recovered 70% of its pre-pandemic value by May 2021 before beginning another drop.
Illustrating the continuing travel slump, EasyJet stated that in July-September it anticipated its capacity to be nearly 57% of the pre-pandemic levels. Ryanair flew nearly 75% of its usual passenger numbers in August, and Wizz flew more than 85% that month.
EasyJet mentioned that it was considering slot opportunities at Amsterdam, Milan Linate, Paris Orly, Lisbon, Porto, and maybe at London Gatwick and the new resources would enable the airline to build its network.
The rights issue is the second time the airline company has tapped shareholders during the pandemic. It raised around 419 million pounds in June 2020. At the time, the group’s largest shareholder, founder Stelios Haji-Ioannou, never participated.
Shares in EasyJet that were trading nearly 1,550 pence before the pandemic hit in Q1 2020, lost by up to 14% in early deals to trade at 680 pence, the lowest level since January. This reflects the huge discount proposed for the rights issue.
They recovered some ground to trade down 10% at 713 pence, while Wizz was down by nearly 3%. Based on the rights issue, the shareholders can acquire 31 new shares for every 47 existing ones for 410 pence each, a 35.8% discount on the theoretical post-rights price of 638 pence per share on September 8.
This issue is underwritten by BNP Paribas, Santander, Goldman Sachs, Societe Generale, and Credit Suisse. EasyJet also unveiled a new committed $400 million secured revolving credit facility.
