EasyJet (EZJ.L) has turned down a bid from Wizz Air to form a low-cost airline to compete with Ryanair instead of raising $1.7 billion from shareholders and going it alone in an industry still recovering from the epidemic.
EasyJet did not name its potential suitor, but someone close to the situation told Reuters that it was Wizz Air (WIZZ.L). Wizz, for his part, remained silent.
EasyJet stated that the all-share strategy undervalued its business fundamentally and that the possible bidder had since stated that it was no longer interested in a purchase.
EasyJet CEO Johan Lundgren told reporters that the strategy was "highly conditional in nature," which made it "very uncertain in terms of deliverability."
EasyJet said the fundraiser, the airline's second of the season, will bolster its balance sheet if the COVID-19 crisis persists and let it operate more aggressively once the crisis is passed. It has discovered potential landing spaces throughout Europe, including in Paris, Amsterdam, and Milan.
"I believe this is really a once-in-a-lifetime opportunity," stated Lundgren.
EasyJet intends to gain market share from legacy carriers like British Airways owner IAG (ICAG.L) and Air France-KLM (AIR.PA) to halt short-haul operations because of the epidemic.
However, it faces heavy competition from Ryanair, Europe's largest budget airline, and Wizz, rebounded quicker than easyJet this year.
Wizz has a large presence in eastern European destinations such as Poland and Romania, while easyJet has a big presence in the United Kingdom, Italy, Switzerland, Germany, and France. Both operate all-Airbus (AIR.PA) fleets, which adds to their potential compatibility.
"EasyJet has always been a strategic target for Jozsef Varadi," a senior industry insider stated of the Wizz CEO.
According to passenger numbers from last year, when fewer people traveled due to the pandemic, the pair would still trail Ryanair by around 20 million passengers.
Wizz has a market value of 5.1 billion pounds ($7 billion), while easyJet has 3.3 billion pounds. Aviation veteran Bill Franke chairs wizz, and his Indigo Partners is the company's largest stakeholder. Its stock has similarly outpaced that of EasyJet.
By November 2020, Wizz shares had recovered to pre-pandemic levels, reaching an all-time high of 5,595 pence in March. On the other hand, EasyJet's shares had recovered 70% of their pre-pandemic value by May 2021 before beginning to slide again.
Issue of Rights
EasyJet said its capacity would be approximately 57 percent of pre-pandemic levels from July to September, illustrating the persistent traffic decline. Ryanair flew over 75 percent of its average passenger numbers in August, while Wizz flew over 85 percent.
EasyJet aims to fly at 60% of 2019 levels in the final three months of 2021, hampered by Britain's delayed return to foreign travel than the rest of Europe.
Due to the prolonged recovery, EasyJet has previously had to raise 5.5 billion pounds from shareholders and financial markets and sell and leaseback aircraft. On Thursday, it also unveiled a new $400 million debt facility.
EasyJet collected 419 million pounds from investors in June 2020, but its largest stakeholder, founder Stelios Haji-Ioannou, opted out. The fresh rights issue, which is expected to raise 1.2 billion pounds, represents a 35.8% discount to the theoretical ex-rights price of 638 pence per share on September 8.
EasyJet shares were down 10% at 710 pence at 1105 GMT, after trading over 1,550 pence before the pandemic hit in early 2020. Wizz shares were down 2%.
The buyout announcement would ordinarily suggest easyJet was in play. Still, due to high industry debt levels and competition difficulties, few viable purchasers, said James Halstead, the managing partner at consulting firm Aviation Strategy.
BNP Paribas, Credit Suisse, Goldman Sachs, Santander, and Societe Generale are underwriting the rights issuance.