- EasyJet shares jump around 10% in early trade
- Castlelake must formalise its easyJet offer by August 3 or walk away
- JPMorgan flagged EU ownership and control hurdles plus uncertain shareholder approval
- easyJet had rebuffed four earlier approaches as opportunistic and governance-risky
July 6 (Reuters) - Shares in easyJet rose 10% in early trading on Monday after the British budget airline agreed in principle to a £5.5 billion ($7.34 billion) takeover proposal from U.S. investment firm Castlelake over the weekend.
EasyJet said on Sunday it was prepared to accept Castlelake's revised bid of £6.90 apiece, potentially ending lengthy negotiations and reshaping Europe's aviation industry.
The latest bid was at a nearly 24% premium to easyJet's share price as of Friday's close.
The shares were up 10.9% at £6.18 as of 0720 GMT on Monday.
The potential take-private deal, which also includes a partial equity alternative, comes at a challenging time for airlines, which are grappling with sharply higher fuel prices and margin pressure linked to the Iran conflict.
JPMorgan analysts, however, raised concerns about how aviation-focused lender Castlelake and the easyJet board would meet European Union ownership requirements and agree on a control structure, with founder and controlling shareholder Stelios Haji-Ioannou's views also unclear.
EasyJet said on Sunday that Castlelake had agreed to a "best endeavours" commitment to obtain regulatory clearances and approvals.
Castlelake has previously said it would own 49% of the bidding vehicle with the remainder held by two EU nationals, former Malaysia Airlines CEO and former easyJet chief operating officer Peter Bellew, and senior industry executive Mark Breen.
EU regulations require airlines operating in the bloc to be majority owned and controlled by EU nationals.
JPMorgan analysts also noted that while the agreed proposal price was close to investors' feedback, approval from shareholders was not guaranteed with prospects of a counter bid also open, or other carriers looking to buy parts of easyJet.
EasyJet rejected Castlelake's four previous proposals calling them opportunistic attempts to buy the airline "on the cheap" and raised concerns over governance structure.
Castlelake must now formalise its offer for easyJet by August 3 or walk away under British takeover rules.
($1 = £0.7496)
Reporting by Prerna Bedi in Bengaluru; Editing by Sherry Jacob-Phillips and Susan Fenton
Source: Reuters