Exclusive: Easyjet shareholder rights to be watered down under Apollo deal
Easyjet shareholders risk having their stake in the airline seized from them unilaterally and are highly unlikely to be paid a dividend if they opt to retain their stake in the carrier once Apollo’s takeover is complete.
According to documents filed by the private markets juggernaut last Thursday, investors who roll their investment into the new vehicle risk losing their stake in a “compulsory transfer” in one of several areas in which their sway will be watered down under the new ownership. They will also be barred from playing an active role in Easyjet’s governance.
Easyjet agreed to a £5.7bn takeover deal with New York alternatives investor Apollo last week, ending months of speculation over the airline’s future after being plunged into a bidding war.
Apollo’s bid represented a more than 80 per cent premium on the airline’s closing share price the day before Castlelake’s interest first emerged, prompting the board to recommend investors accept the cash offer.
But under the terms struck between the two parties last week, any Easyjet investors who choose to maintain their stake in the company will be able to roll their holding into the newly-minted ownership structure.
The majority of investors are expected to accept the deal. But takeover filings reveal that the shares of those who choose to roll into the fresh fund risk missing out on a slew of perks that will be enjoyed by Apollo and Easyjet founder Stelios Haji Ioannu.
According to the papers, rolled-over shares will be “subordinated” to allow Apollo to pay itself a dividend worth 14 per cent of its stake a year without handing any cash to other shareholders.
Easyjet shareholders risk losing stake in ‘compulsory transfer’
Non-EU investors also risk having their stakes unilaterally seized by EasyJet’s new management to avoid breaching the bloc’s strict ownership rules. European law requires the region’s airlines to be majority-owned or controlled by EU investors, giving the company the right to compulsorily redeem shares if foreign ownership risks breaching the threshold.
But under the terms laid out in the agreement, “the compulsory transfer and… compulsory buy-back provisions will not apply to Apollo… or their affiliates”.
Morning Wire analysis of the takeover document also showed shareholders will maintain the right to vote at future general meetings. But like the governance structure of the airline’s previous public ownership, they will not be granted input on director appointments or “investment in Easyjet Group”. Both Apollo and Haji Ioannu, whose stakes are above a 20 per cent threshold to earn them a higher degree of control of the airline, will be able to steer decisions on both fronts.
The developments come as the small-print of the mega-deal comes under increasing scrutiny from third parties and investors. On Friday, it emerged Easyjet will be loaded with more than £3bn of debt used by Apollo to help finance the transaction, as first reported in The Times.
Before agreeing to the tie-up, the carrier had one of the most robust balance sheets in the industry. But the leveraged buyout, which is a common practice in private equity-led deals, could lead ratings agencies to slash the airline’s credit rating to ‘junk’. Moody’s has placed its rating for the Easyjet under review in the wake of the deal, amid uncertainty over its future capital structure.
Easyjet and Apollo declined to comment.