EasyJet rejects takeover bid and announces £1.2bn rights issue

Shares in budget airline easyJet tumbled today after it said it had rejected a rival’s takeover bid and would be raising cash from shareholders and taking on more debt. Saloni Sardana reports.

The board of British budget airline easyJet unanimously rejected a takeover bid by a rival on Thursday on grounds the offer “undervalued the business”.

Johan Lundgren, the company’s chief executive, confirmed nothing, but the unsolicited approach is said to be from Hungarian airline Wizz Air, reports the Financial Times

EasyJet said it is no longer considering any offer.

The news sent easyJet’s shares into freefall on Thursday. At the time of writing the share price is down 11% at £702.

Why did easyJet’s shares fall so much?

Investors appear to have placed greater emphasis on other news, in which easyJet said it was looking to raise around $1.2bn from shareholders through a rights issue in an effort to bolster its recovery.

Easyjet said it wanted to use the rights issue to boost its balance sheet and benefit from any growth opportunities that “strengthen easyJet's long-term positioning in the European aviation sector”.

The airline also said it had secured new bank financing commitments “which will further strengthen the company's liquidity position”. This involves a $400m new four-year senior secured revolving credit facility.

It made it clear that it may take further action and will “continue to review its liquidity position on a regular basis and will continue to assess further funding opportunities, should the need arise.”

With the aviation sector one of the hardest hit by the Covid pandemic, easyJet took a number of measures to survive, including cutting 4,500 jobs, raising cash from shareholders, and selling aircraft.

Lundgren said: "The capital raise announced today not only strengthens our balance sheet... but will also position us for growth so that we can take advantage of the strategic investment opportunities expected to arise as the European aviation industry emerges from the pandemic.”

EasyJet expects to fly up to 60% of 2019’s first-quarter capacity next year; a stark reminder that the pandemic may weigh on airlines into next year.

Laura Hoy, equity analyst at Hargreaves Lansdown, cast doubt on whether the measures would help easyJet recover demand, as the Delta variant may cause people to hold off their travel plans. “While nationwide lockdowns may not resume in earnest, people are likely to start policing themselves this winter by avoiding risky travel and large crowds,” she adds.

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