UPDATE 3-EasyJet to raise $1.7 bln after rejecting takeover bid

* To raise $1.7 bln from shareholders in rights issue

* Rejects all-share offer, source says bidder was Wizz Air

* Says new funds will help buy new airport slots

* Shares down 10%, reflecting discount for planned issue
(Adds CEO, analyst comments)

By Sarah Young

LONDON, Sept 9 (Reuters) - EasyJet has rejected a
takeover offer and will instead raise $1.7 billion from
shareholders to strengthen its position in a European market
struggling to recover from the COVID-19 pandemic, the British
airline said on Thursday.

The low-cost carrier did not identify its suitor, but said
the all-share approach fundamentally undervalued its business
and the potential bidder had since said it was no longer
interested in a deal.

A source familiar with the matter told Reuters the approach
was from budget rival Wizz Air, which declined to
comment.

EasyJet Chief Executive Johan Lundgren told reporters the
approach was "highly conditional in its nature which made it
very uncertain in terms of the deliverability of it."

The airline said the planned rights issue would strengthen
its balance sheet should the COVID-19 downturn continue and
allow it to take advantage of an expected recovery in Europe's
aviation market over the coming years by, for example, expanding
its presence at key airports by buying more landing slots.

"I believe this is really a once in a lifetime opportunity,"
Lundgren said.

EasyJet is aiming to steal market share from legacy carriers
like British Airways owner IAG and Air France-KLM
as they retract their short-haul operations.

But it faces stiff competition from low-cost rivals Ryanair
, Europe's biggest airline, and Wizz Air, both of which
have recovered faster than easyJet over the summer.

IAG also plans to step up its low-cost offer with a new
subsidiary at London's Gatwick Airport aimed at better competing
with easyJet.

EasyJet said that over July-September it expected its
capacity to be about 57% of pre-pandemic levels. Ryanair flew
around 75% of its normal passenger numbers in August, and Wizz
flew over 85% that month.

Shares in easyJet, which were trading around 1,550 pence
before the pandemic hit in early 2020, fell as much as 14% in
early deals to 680 pence, the lowest since January, reflecting
the big discount proposed for the rights issue.

They regained some ground to trade down 10% at 712 pence at
0815 GMT, giving a market capitalisation of 3.33 billion pounds
($4.59 billion). IAG shares were down 3.3%, the biggest faller
in the FTSE-100, while Wizz was down 2.6%.

Under the rights issue, shareholders would be able to buy 31
new shares for every 47 existing ones for 410 pence each, a
35.8% discount on the theoretical ex-rights price of 638 pence
per share on Sept. 8, easyJet said.

The issue is underwritten by BNP Paribas, Credit Suisse,
Goldman Sachs, Santander and Societe Generale.

EasyJet also announced a new committed $400 million secured
revolving credit facility.

($1 = 0.7264 pounds)
(Reporting by Sarah Young and Paul Sandle
Editing by Kate Holton and Mark Potter)