Shares in easyJet (LSE: EZJ) crashed 10% Thursday morning after the budget airline revealed it’s rejected a takeover offer. Oh, and that it plans a new £1.2bn rights issue. The easyJet share price had been picking up earlier in the year, but this latest fall, on top of the slide since early summer, has left us with a 15% drop in 2021.
Over the past two years, taking in the whole of the pandemic period, easyJet shares are down 34%. That’s still way better than International Consolidated Airlines, mind. The British Airways owner has seen its shares plunge 68% over the same timescale.
As well as a “fully underwritten rights issue to raise gross proceeds of approximately £1.2bn,” easyJet told us it “has also agreed commitments for a new four-year senior secured revolving credit facility of $400m.”
Why’s easyJet issuing new shares now? Well, at 30 June, net debt stood at £2bn. That seems like a pretty hefty burden to me, for a company with a market-cap of £3.2bn. The company reckoned it had sufficient liquidity at the time.
But it would mean too much risk for me. I rate the airline business as risky at the best of times, faced with numerous factors outside of its control. So investing in easyJet heading into a largely unknown future with a big debt burden round its neck? Well, I don’t think much of that idea.
New issue price
The airline has priced the new equity at 410p per share. The easyJet share price, as I write, has fallen to around 700p. But the company rates the offer as a 35.8% discount on “the theoretical ex-rights price of 638 pence per Existing Share by reference to the closing price on 8 September 2021.”
The issue’s fully underwritten, so it’s a done deal, whatever the shareholder reaction. But I reckon it’ll be a tempting offer. Shareholders have the option of buying 31 new shares for every 47 they currently hold, at the new discounted price. So yes, if I already thought the easyJet price represented a ‘buy’, then I think I’d subscribe for some new ones too.
The timing of the rights issue might also help fend off any new takeover attempts. As for the rejected one, easyJet isn’t saying much. Just that it was unsolicited, and that it was “carefully evaluated and then unanimously rejected.” The potential bidder, it seems, has confirmed it’s no longer interested.
easyJet share price valuation
It’s a shame we don’t know the value of the bid. That would perhaps give us some yardstick with which to measure the new rights issue. And perhaps a better feeling for the value of the current easyJet share price. But anyway, what would I do now?
I’m going to stick to my rule to never buy an airline, especially not in my older dividend-seeking days. But I reckon a younger me with an appetite for a bit of risk would go for easyJet. I’d probably wait until the current dust has settled though.
