- US investment group says it is considering a takeover offer for easyJet
- Spring profit warnings, depressed share price, and lowly valuation explain why
- But stake owned by airline’s founder and EU ownership rules could thwart the plan
- Share price’s muted response to proposal suggests shareholders are not convinced that any bid will be successful
- UK merger and acquisition boom continues
“It is easy to see why American investment group Castlelake would seek to bid for easyJet, given how spring’s pair of profit warnings, an unhelpful macroeconomic backdrop and a depressed share price leave the airline without much cloud cover,” says AJ Bell investment director Russ Mould.
“However, the share price’s muted response to the possibility of an offer for the FTSE 250 index member suggests investors believe the would-be buyer will struggle to get around EU airline ownership rules or persuade easyJet’s founder, Sir Stelios Haji-Ioannou to sell his remaining 15.3% stake.
Source: LSEG Refinitiv data
“easyJet’s cautionary outlook statements from earlier this year cited higher fuel costs, thanks to the war in the Middle East, an increase in legal provisions and a decrease in visibility on customer bookings, as would-be holidaymakers ponder what to book and where, in light of squeezed incomes and geopolitical turbulence.
“As a result, analysts believe the recovery in earnings from the dark days of 2020-21’s Covid lockdowns will hit an air pocket in 2026, even though chief executive Kenton Jarvis and easyJet’s board retain their commitment to £1 billion in pre-tax profit by 2030.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts. Financial year to September.
“The wider, longer-term challenges posed by the airline industry’s nature remain as prevalent as ever. Oil and fuel price volatility can affect the cost base dramatically, competition remains brutal and the capital-intensive business model means even small changes in passenger volumes or pricing lead to a big change in profits.
“The ongoing scrap for share with Ryanair and Wizz on one hand, and incumbent national operators such as Lufthansa, Air-France KLM and the International Consolidated Airlines-owned British Airways and Iberia on the other also means easyJet is spending heavily on new aircraft as it adds capacity to try and win share in the growing travel market, adds routes and manages costs with more fuel-efficient planes.
Source: Company accounts, management guidance, analysts' consensus forecasts. Financial year to September.
“This combination of factors leaves easyJet’s shares at levels no higher than those seen in 2020, during Covid-19 and lockdowns, and way below 2018’s all-time high.
“Bid rumours first circulated last autumn, only for nothing to come of them, but Castlelake is now considering an approach as it seeks to take advantage of easyJet’s low-flying share price. The valuation paid for a company’s assets, profits and cash flow is the ultimate arbiter of investment return, after all, whether someone owns one share or all of them.
“Analysts’ forecasts for a sharp drop in profits mean that easyJet does not look cheap at all on a price-to-earnings (P/E) basis for the current financial year, relative to its rivals or in absolute terms.
“However, earnings multiples are more in keeping with its peers for 2028, based on analysts’ forecasts for a thumping recovery in profits over the next two years, while easyJet looks cheap compared to a basket of European competitors on the basis of price-to-book value (P/BV) and enterprise value to invested capital (EV/IC).
Source: Company accounts, Marketscreener, analysts’ consensus forecasts, LSEG Refinitiv data. Book value based on last set of annual or interim results, defined as shareholders’ funds minus intangible assets. Invested Capital based on last set of annual or interim results, define as net working capital plus plant, property, and equipment (PP&E) plus goodwill plus intangible assets.
“This helps to explain the timing of Castlelake’s swoop, but it is unlikely that the same numbers will escape the attentions of easyJet’s founder, Sir Stelios Haji-Ioannou, who may prove unwilling to sell his stake in the absence of a very, very generous premium to the undisturbed share price.
“Shareholders will also want clarity on how Castlelake, as a US-based investor, intends to satisfy EU regulations which prevent a non-EU owner from holding a majority share of an EU airline.
“Either way, a putative bid for a member of the FTSE 250 index, and a company that was in the FTSE 100 as recently as March, can be seen as supportive to the view that UK equities are cheap.
“The potential offer for easyJet, coupled with Drax’s £548 million offer for Bluefield Solar Income Fund, takes the tally of live or completed bids for UK-listed companies to 28, while the total value of the transactions could come to £39.3 billion if they all complete as planned.
Source: Company accounts. *2026 as of 1 June 2026 and includes completed, live and putative transactions
“Meanwhile the average premium offered relative to the undisturbed share price by the bidders, for the 22 deals where the terms are public, comes to a meaty 45%.”
Source: Company accounts. *2026 as of 1 June 2026 and includes completed, live and putative transactions
