European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Event-Driven

<p>On 9 September, in a <strong>defensive move</strong>, <a href="https://www.smartkarma.com/entities/easyjet-plc" target="_blank" data-smartkarma-citation="entities:21929:1" rel="noopener">easyJet PLC (EZJ LN)</a> first rejected a takeover approach from <a href="https://www.smartkarma.com/entities/wizz-air-holdings-plc" target="_blank" data-smartkarma-citation="entities:22208:1" rel="noopener">Wizz Air Holdings (WIZZ LN)</a> that would have created a low-cost airline to rival Ryanair, then launched a fully underwritten £1.2 bn rights issue to fly solo in its struggle to recover from the pandemic. The share price of easyJet went into a tailspin.</p>
<p>EasyJet said the all-share unsolicited approach fundamentally undervalued its business and added the potential bidder had since said it was no longer interested in a deal. It added that the approach was highly conditional and with a low premium, which made it very uncertain in terms of the deliverability.</p>
<p>EasyJet explained that the proceeds from the capital raise "will protect and strengthen the long-term position in the European aviation sector". In addition, it hopes the funds will "facilitate and accelerate the group's recovery from the impact of the Covid-19 pandemic, by providing resistance to risks, should the pandemic continue to slow or delay the recovery of passenger volumes during the next 12 months". EasyJet believes that the expansion will provide "the necessary flexibility to take advantage of the strategic and long-term investment opportunities that are expected to arise, as the European aviation market emerges from the pandemic, in particular as the big airlines restructure their short-haul operations".</p>
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<p><strong>47 rights are needed to subscribe for 31 new shares</strong>. The issue price is <strong>410p/new share</strong> and represents a 48.0% discount to the closing price prior to announcement (789p) and a <strong>35.8% discount to TERP</strong>. While the market value of the old shares exceeds the issue price, the right to buy the new shares is potentially valuable. This is a very large amount by any measure, equivalent to an IPO. Shareholders are enduring a 40% dilution (and according to Dow Jones, Stellios, the main shareholder is not likely to participate (potentially heavily diluting his stake from 25.3% currently to around 15%). Nevertheless one would expect most investment funds and large holders to take up their rights, otherwise they would be leaving a lot of money on the table.</p>
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<p>This is akin to a <strong>placing by market volume</strong>. I am assuming that many retail shareholders will not take their rights, and the underwriters (and hedge funds) may be covering their short positions after the end of the rights trading period through to the beginning of trading of the new shares. Arbs will be buying the rights and short selling the shares.</p>
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<p>My <strong>fair value estimate</strong> (adjusted for the rights issue) is <strong>728p</strong>, which represents <strong>5.3x EV/2023e EBITDA</strong>.</p>
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On 9 September, in a defensive move, easyJet PLC (EZJ LN) first rejected a takeover approach from Wizz Air Holdings (WIZZ LN) that would have created a low-cost airline to rival Ryanair, then launched a fully underwritten £1.2 bn rights issue to fly solo in its struggle to recover from the pandemic. The share price of easyJet went into a tailspin.
EasyJet said the all-share unsolicited approach fundamentally undervalued its business and added the potential bidder had since said it was no longer interested in a deal. It added that the approach was highly conditional and with a low premium, which made it very uncertain in terms of the deliverability.
EasyJet explained that the proceeds from the capital raise "will protect and strengthen the long-term position in the European aviation sector". In addition, it hopes the funds will "facilitate and accelerate the group's recovery from the impact of the Covid-19 pandemic, by providing resistance to risks, should the pandemic continue to slow or delay the recovery of passenger volumes during the next 12 months". EasyJet believes that the expansion will provide "the necessary flexibility to take advantage of the strategic and long-term investment opportunities that are expected to arise, as the European aviation market emerges from the pandemic, in particular as the big airlines restructure their short-haul operations".

47 rights are needed to subscribe for 31 new shares. The issue price is 410p/new share and represents a 48.0% discount to the closing price prior to announcement (789p) and a 35.8% discount to TERP. While the market value of the old shares exceeds the issue price, the right to buy the new shares is potentially valuable. This is a very large amount by any measure, equivalent to an IPO. Shareholders are enduring a 40% dilution (and according to Dow Jones, Stellios, the main shareholder is not likely to participate (potentially heavily diluting his stake from 25.3% currently to around 15%). Nevertheless one would expect most investment funds and large holders to take up their rights, otherwise they would be leaving a lot of money on the table.

This is akin to a placing by market volume. I am assuming that many retail shareholders will not take their rights, and the underwriters (and hedge funds) may be covering their short positions after the end of the rights trading period through to the beginning of trading of the new shares. Arbs will be buying the rights and short selling the shares.





My fair value estimate (adjusted for the rights issue) is 728p, which represents 5.3x EV/2023e EBITDA.




EasyJet to Launch £1.2 Bn Rights Issue After Rejecting Hostile Takeover Approach