easyJet (LSE:EZJ) shares have taken off. Over the last month, they’ve surged about 40%.
Wondering what’s going on? Here’s what you need to know…
Why’s the easyJet share price flying?
The share price strength here isn’t related to operational performance. Instead, it’s to do with the fact that easyJet has received a number of takeover offers from US-based private equity firm Castlelake. And there’s been an easing of geopolitical tension and oil prices have come down.
We first started hearing about the takeover interest back in late May. At the time, Castlelake said it was in the early stages of considering a proposal.
Since then, it’s made three non-binding proposals for easyJet, all of which have been rejected. These were at 560p, 600p, and 625p per share.
Following the rejection of the third proposal, Castlelake has publicly announced details of the offer today (22 June) in an effort to get easyJet shareholders to consider its merits and provide their views to the board ahead of a deadline on 26 June. It points out that the 625p offer represents:
- A premium of almost 60% to the easyJet share price before news of takeover interest emerged.
- A premium of 35% to the closing easyJet share price before the outbreak of the US-Iran conflict.
- A price above any closing easyJet share price since 25 February 2022.
- A price above all research analyst price targets published since 16 April.
- A price-to-earnings (P/E) multiple of 16.5 using the FY2027 earnings forecast.
In today’s announcement, the company says it believes this third proposal “substantially de-risks” the execution of easyJet’s business plan for investors. It adds that it plans to offer a partial equity alternative, allowing easyJet shareholders to remain invested in the airline as a privately held business in partnership with the firm.
Why aren’t the shares higher?
Now, what’s interesting is that, as I write this, easyJet’s share price is sitting at about 520p. That’s well below the third offer from Castlelake.
This suggests investors don’t see a deal going through. It’s worth pointing out here that a takeover might be difficult to get past regulators.
What’s the best move now?
In terms of what investors should do now, it’s a bit of a tricky one because the backdrop here remains complex. Not only are there geopolitical and oil price uncertainties, but consumer spending weakness is also a risk.
Personally, I don’t see easyJet shares as a buy to consider after their recent pop. There was definitely some value on offer a few months ago when they were trading near 350p. However today, a lot of that value has gone.
At the current price, the shares are trading at roughly 12 times next financial year’s earnings forecast. Given the risks, I wouldn’t want to pay more than that for this business.
But for those who own them already, holding on could be a move worth considering. Because there’s a chance that a takeover could happen. There’s also a chance that operational performance could improve now that oil prices are falling. Investor sentiment towards the shares could improve too.
That said, if Castlelake walks away from a deal, the shares could pull back. So selling a few shares today could also be an option to consider.
Should you invest £5,000 in easyJet Plc right now?
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Edward Sheldon does not hold any positions in the companies mentioned
