Easyjet shares dropped significantly after reports that the European Union is considering a probe into airline ownership rules. This review could potentially complicate the budget airline's proposed takeover by Apollo.
The potential EU probe into airline ownership rules raises significant concerns for Easyjet's ongoing takeover process, potentially impacting foreign investment in the European aviation sector and affecting shareholder value.
Shares in Easyjet experienced a significant decline on Wednesday due to concerns over a potential European Union investigation into airline ownership regulations. The London-listed budget airline's stock plummeted after reports surfaced that the EU is preparing a probe that could complicate its proposed acquisition by US investment firm Apollo.
Easyjet had recently indicated it was likely to accept an all-cash offer from Apollo, which surpassed an earlier bid from another US firm, Castelake. However, this takeover is now uncertain due to the EU's review of airline ownership rules. The review may seek to prevent foreign investors from obtaining effective control of European carriers, according to Reuters, citing an unnamed EU official.
The assessment of ownership rules is part of a broader review of airline services and was not specifically initiated by Apollo's bid. Existing EU regulations stipulate that airlines operating within the continent must be majority-owned by European nationals, as they are considered strategic national assets. Castelake had previously attempted to navigate these restrictions by establishing a new entity managed by European nationals.
An EU official stated that the review's purpose is to ensure foreign investors do not gain full control, emphasizing the need for sufficient headroom regarding control. The rules remain applicable to Easyjet due to its Austrian subsidiary. The scale of Easyjet's share price drop, exceeding 14%, reflects market nervousness about private equity's ability to comply with the European Commission's requirements, according to Mark Kelly, chief executive of MKI Advisors. He noted that precedents for healthy airlines being taken over are scarce and that the EC's framework is likely to be more stringent than in cases involving insolvent companies.
The official further indicated that the review would clarify permissible corporate structures, with a specific focus on control and ownership. It was also reported that Apollo, Castelake, and Easyjet had not yet discussed the details of their proposed deals with European regulators.