Apollo trumps Castlelake with £5.7bn easyJet bid as board switches recommendation

The bid that blindsided markets

Apollo's 715p-per-share offer emerged just three days after Castlelake had finally secured a provisional agreement with easyJet's board on July 5. The proposal values the Luton-based carrier at roughly £5.7 billion, or $7.7 billion. Apollo had been preparing its approach for months, according to people familiar with the matter cited by the Financial Times, but waited until Castlelake's highest bid was on the table before making its move.

Mental – no one saw that coming.

Board reversal and market reaction

easyJet's board, chaired by Sir Stephen Hester, withdrew its recommendation for Castlelake's 690p offer on July 10 and said it was "minded to recommend" Apollo's proposal to shareholders. The board noted that Apollo's cash bid provided "a higher cash value than the most recent proposal from Castlelake". Shares in easyJet rose 14% to 670 pence, the highest level since late September 2022, though still far below the all-time high of 15.84 pounds reached in March 2015.

The Apollo offer represents an 81% premium over the undisturbed closing price of 394p on May 28, the last trading day before Castlelake's initial interest became public. It also sits 22% above the stock's four-year high of 588p.

Two suitors, two strategies

The bidding contest pits two US investment firms with long histories in aviation finance against each other. Apollo, a $1 trillion asset manager, has owned or financed airlines including Aeromexico, Sun Country Airlines, and Atlas Air, and has provided capital to Air France-KLM and Virgin Atlantic. Castlelake, with $38 billion under management, has traditionally focused on aircraft financing and leasing.

Apollo has followed easyJet for many years and continues to regard it as one of the most attractive businesses in the global aviation sector and a highly differentiated franchise with significant long-term growth potential.

Apollo has publicly backed easyJet's current strategy and management, while Castlelake's intentions remain less clearly defined. Some speculation, cited by Frankfurter Allgemeine, suggested Castlelake might consider breaking up the airline. Apollo's approach also includes an explicit commitment to maintain the brand licensing agreement with easyJet's founder Sir Stelios Haji-Ioannou, whose family retains a 15% stake and receives a small percentage of revenues for use of the "easy" name.

The regulatory puzzle

Both bids must satisfy EU airline ownership rules requiring at least 50.1% of ownership and effective control to remain within the European Union. Apollo's proposal includes a "stub equity alternative" allowing eligible shareholders, a group widely interpreted to include Sir Stelios, to roll existing holdings into a private investment vehicle with voting rights. The Guardian reported that Hester would be wise to insist on a "chunky break-fee" in easyJet's favour if EU regulators ultimately reject the legal structure.

What comes next

Under UK takeover rules, Apollo has until August 7 to announce a firm intention to bid or walk away. Analysts at Bernstein, cited by the FT, think easyJet's assets, including 208 aircraft, order book, slots, and holidays division, could be worth £6-7 billion if broken up. However, Apollo faces the harder task of improving operations. easyJet's ebitda margin last financial year stood at 10%, about half Ryanair's expected level. Apollo's track record with Sun Country and Aeromexico, both of which improved profitability significantly, suggests a path. The firm would need to raise easyJet's margin toward 20% by 2030 to justify the price, according to the FT's Lex column.

Castlelake has not withdrawn, and one person close to the process cautioned: "Don't call it over until it's over." A competitive auction, if sustained, could push the price higher. For the London stock market, an easyJet departure would extend the drift of established companies into private hands.