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(Sharecast News) - EasyJet said it would raise £1.2bn in a rights issue to strengthen its balance sheet after rejecting a takeover approach reported to be from Wizz Air.
The budget airline said the trading environment remained uncertain and that raising funds would protect its long-term position in the European aviation market. A stronger balance sheet will protect against a "downside scenario" of continued travel restrictions and a slower recovery for travel.
EasyJet also said it recently received an unsolicited preliminary takeover approach. The board rejected the all-share proposal and the potential bidder is no longer considering an offer, it said. Wizz Air, easyJet's fast-growing budget rival, made the approach, Bloomberg reported.
EasyJet shares fell 11.2% to 700.6p and Wizz shares dropped 3.9% to £47.81 at 08:51 BST. Wizz has a market value of £4.9bn and easyJet is valued at £3.2bn.
EasyJet said the proposal "fundamentally undervalued" the company. "In deciding to reject it, the board took into account all relevant factors including the highly conditional nature of the proposal and the certainty and strategic opportunity that the rights issue presented to the company," the company said.
Russ Mould, investment director at AJ Bell, said: "Wizz Air is incredibly ambitious and easyJet would provide it with much greater coverage of western Europe, having already established a strong position in eastern Europe. It is financially stronger than many of its rivals and owning EasyJet could turbocharge its growth.
EasyJet said the rights issue would also support its credit rating and give the company flexibility to act on opportunities. The company said it had also agreed a new four-year senior secured revolving credit facility of $400m.
Alexander Paterson, an analyst at Peel Hunt with a 'buy' rating on easyJet, said: "The capital raise is unsurprising given the continuing travel restrictions over the summer and inevitably high cash burn over the winter, even if restrictions and testing requirements are eased. Having raised capital, easyJet should be in a better position to be able to benefit from recovering S22 [summer 2022] demand, particularly for package holidays."
