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EasyJet rejects Wizz bid and raises $1.7 bln to go it alone

Summary To raise $1.7 bln from shareholders in rights issue

Rejects all-share offer, source says bidder was Wizz Air

Says new funds will help buy new airport slots

Shares down 10%, reflecting discount for planned issue

LONDON, Sept 9 (Reuters) - EasyJet (EZJ.L) has rejected a takeover approach from Wizz Air that would have created a low-cost airline to rival Ryanair, opting instead to raise $1.7 billion from shareholders and go it alone in an industry battling to recover from the pandemic.

EasyJet declined to name its suitor, but a source familiar with the matter told Reuters it was Wizz Air (WIZZ.L). Wizz also declined to comment.

EasyJet said the all-share approach fundamentally undervalued its business, and added the potential bidder had since said it was no longer interested in a deal.

The approach was “highly conditional in its nature which made it very uncertain in terms of the deliverability,” easyJet CEO Johan Lundgren told reporters, without giving details.

EasyJet said the fundraising, its second of the pandemic, would strengthen its balance sheet should the COVID-19 downturn continue and allow it to operate more aggressively once the recovery arrives. It has identified landing slots across Europe it could acquire, including in Paris, Amsterdam and Milan.

“I believe this is really a once in a lifetime opportunity,” Lundgren said.

EasyJet, which during the pandemic sunk to its first ever annual loss and cut 4,500 jobs, wants to steal market share from legacy carriers like British Airways owner IAG (ICAG.L) and Air France-KLM (AIR.PA) as they retract their short-haul operations.

But it faces stiff competition from Ryanair, Europe’s largest budget airline, and rapidly expanding Wizz, both of which have recovered faster than easyJet this year.

Wizz is strong in eastern European destinations like Poland and Romania, while easyJet is well-positioned in countries including Britain, Italy, Switzerland, Germany and France. Adding to their potential good fit, both also operate all-Airbus (AIR.PA) fleets.

“EasyJet has always been a strategic target for Jozsef Varadi,” said a senior industry source of the Wizz CEO.

Based on passenger data from last year, when fewer people travelled during the pandemic, a combination of the pair would still lag Ryanair by almost 20 million passengers.

An Easyjet Airbus aircraft taxis close to the northern runway at Gatwick Airport in Crawley, Britain, August 25, 2021. REUTERS/Peter Nicholls

Wizz, which counts aviation veteran Bill Franke as its chairman and his Indigo Partners as its biggest shareholder, has a market value of 5.1 billion pounds ($7 billion), while easyJet is worth 3.3 billion pounds. Its share price has also outperformed easyJet’s.

Shares in Wizz had bounced back to pre-pandemic levels by November 2020 and hit an all-time high of 5,595 pence in March. EasyJet’s stock, by contrast, had recovered 70% of its pre-pandemic value by May 2021 before starting another decline.

RIGHTS ISSUE

Illustrating the ongoing travel slump, easyJet said that over July-September it expected its capacity to be about 57% of pre-pandemic levels. Ryanair flew around 75% of its normal passenger numbers in August, and Wizz flew over 85% that month.

For the last three months of 2021 easyJet expects to fly up to 60% of 2019 levels, held back by Britain’s slower return to international travel than the rest of Europe.

The drawn out recovery has already forced easyJet to raise 5.5 billion pounds from shareholders and debt markets, and by selling and leasing back aircraft. It also announced a new $400 million debt facility on Thursday.

In June 2020, easyJet raised 419 million pounds from investors, but its biggest shareholder, founder Stelios Haji-Ioannou, did not participate. The new rights issue, raising 1.2 billion pounds, represents a 35.8% discount on the theoretical ex-rights price of 638 pence per share on Sept. 8.

Shares in easyJet, which were trading around 1,550 pence before the pandemic hit in early 2020, were down 10% at 710 pence at 1105 GMT, while Wizz was down 2%.

James Halstead, managing partner at consulting firm Aviation Strategy, said the takeover announcement would normally mean easyJet was in play, but there were few alternative buyers due to high industry debt levels and competition issues.

The rights issue is underwritten by BNP Paribas, Credit Suisse, Goldman Sachs, Santander and Societe Generale.

($1 = 0.7264 pounds)

Additional reporting by Paul Sandle Editing by Kate Holton and Mark Potter

Our Standards: The Thomson Reuters Trust Principles.

easyJet (EZJ Stock) share price nosedives on right issue announcement

The airline sector has been at the forefront of the pandemics impact over the last 18 months, and at the end of H1 reported a loss of £701m in May. In July the company said the outlook for Q3 wasn’t expected to look much better with the airline saying it only expected to fly around 15% of its 2019 capacity.

As it turns out the company flew 17% of 2019 capacity in Q3, which makes three successive quarters of capacity below 20%, however that still equated to a loss of £318.3m.

This was still better than expected and was largely helped by reducing costs and cash burn to £34m per week on average.

As regards Q4 the airline was slightly more upbeat, saying that they intended to increase capacity to 60% of 2019 levels, especially on the more popular routes.

At the time, easyJet also said it had paid a further £122m of customer refunds during the quarter, along with vouchers to the value of £230m.

In May the airline said it had access to £2.9bn of liquidity, however today in a sign that management want to be able to ride out what could be a difficult winter season easyJet have announced that they are looking to raise another £1.2bn from a fully underwritten rights issue, sending the shares sharply down and back to its January lows.

Unsurprisingly the shares haven’t reacted well to this announcement falling sharply as shareholders face having to fork out more extra cash.

In various attempts to shore up its finances over the last 18 months the airline has already raised over £5.5bn already since the start of the pandemic. It has also gone down the route of selling and leasing back 43 of its aircraft to raise extra cash, though it appears to have decided not to double down in this direction for the time being. It does still leave another 141 fully owned and unencumbered aircraft, which represents over 40% of its remaining fleet.

In a surprise aside the airline also said it had rejected an unsolicited preliminary takeover approach, from a source it declined to name, although there are unconfirmed reports the suitor was Wizzair.

In an update to current trading easyJet said it expects Q4 capacity to increase to 57% of 2019 levels, which is slightly below the 60% it had hoped for in its Q3 update. Looking into Q1 the company says it expects to fly up to 60% of Q1 2019 capacity.

This is probably some way from where the airline expected it would be at the beginning of this year, and probably helps explain why easyJet has decided to raise extra cash now. The outlook for airlines continues to be challenging with any sort of back to normal unlikely to come much before Q2 next year.

easyJet may not be the last airline to look at raising extra capital in the weeks and months ahead, given the current environment.