UPDATE 5-EasyJet rejects Wizz bid and raises $1.7 bln to go it alone

* 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 sector details)

By Sarah Young and Abhinav Ramnarayan

LONDON, Sept 9 (Reuters) - EasyJet has rejected a
takeover approach from Wizz Air that would have created a
low-cost airline to rival Ryanair, opting instead to raise $1.7
billion from shareholders and go it alone in an industry
battling to recover from the pandemic.

EasyJet declined to name its suitor, but a source familiar
with the matter told Reuters it was Wizz Air. Wizz also
declined to comment.

EasyJet said the all-share approach fundamentally
undervalued its business, and added the potential bidder had
since said it was no longer interested in a deal.

The approach was "highly conditional in its nature which
made it very uncertain in terms of the deliverability," easyJet
CEO Johan Lundgren told reporters, without giving details.

EasyJet said the fundraising, its second of the pandemic,
would strengthen its balance sheet should the COVID-19 downturn
continue and allow it to operate more aggressively once the
recovery arrives. It has identified landing slots across Europe
it could acquire, including in Paris, Amsterdam and Milan.

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

EasyJet, which during the pandemic sunk to its first ever
annual loss and cut 4,500 jobs, wants 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 Ryanair, Europe's
largest budget airline, and rapidly expanding Wizz, both of
which have recovered faster than easyJet this year.

Wizz is strong in eastern European destinations like Poland
and Romania, while easyJet is well-positioned in countries
including Britain, Italy, Switzerland, Germany and France.
Adding to their potential good fit, both also operate all-Airbus
fleets.

"EasyJet has always been a strategic target for Jozsef
Varadi," said a senior industry source of the Wizz CEO.

Based on passenger data from last year, when fewer people
travelled during the pandemic, a combination of the pair would
still lag Ryanair by almost 20 million passengers.

Wizz, which counts aviation veteran Bill Franke as its
chairman and his Indigo Partners as its biggest shareholder, has
a market value of 5.1 billion pounds ($7 billion), while easyJet
is worth 3.3 billion pounds. Its share price has also
outperformed easyJet's.

Shares in Wizz had bounced back to pre-pandemic levels by
November 2020 and hit an all-time high of 5,595 pence in March.
EasyJet's stock, by contrast, had recovered 70% of its
pre-pandemic value by May 2021 before starting another decline.

RIGHTS ISSUE

Illustrating the ongoing travel slump, 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.

For the last three months of 2021 easyJet expects to fly up
to 60% of 2019 levels, held back by Britain's slower return to
international travel than the rest of Europe.

The drawn out recovery has already forced easyJet to raise
5.5 billion pounds from shareholders and debt markets, and by
selling and leasing back aircraft. It also announced a new $400
million debt facility on Thursday.

In June 2020, easyJet raised 419 million pounds from
investors, but its biggest shareholder, founder Stelios
Haji-Ioannou, did not participate. The new rights issue, raising
1.2 billion pounds, represents a 35.8% discount on the
theoretical ex-rights price of 638 pence per share on Sept. 8.

Shares in easyJet, which were trading around 1,550 pence
before the pandemic hit in early 2020, were down 10% at 710
pence at 1105 GMT, while Wizz was down 2%.

James Halstead, managing partner at consulting firm Aviation
Strategy, said the takeover announcement would normally mean
easyJet was in play, but there were few alternative buyers due
to high industry debt levels and competition issues.

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

($1 = 0.7264 pounds)
(Additional reporting by Paul Sandle
Editing by Kate Holton and Mark Potter)