A bid for easyJet: Could it happen?

It is not often that an airline stock sets the market alight, but that is exactly what the surge in easyJet’s share price since the third quarter of last year has done. Back then, it was trading at just above the 120p mark. It is now changing hands at around 300p.

The reason for this massive increase is not hard to fathom. Iceland‘s FL Group, the owner of Icelandair, started buying into the stock back in October, and despite the hike in easyJet’s share price, is still buying, with its stake now over the 13% mark.

There is little doubt then about the main reason for the increase in the share price. While easyJet’s new investor relations team may be doing a better job of managing expectations, the airline’s financial performance has been solid rather than spectacular. It is the prospect of a takeover that has got the market excited.

When FL first started to buy into easyJet, few saw any rationale in the move, other than the fact that, in hindsight, it was a good financial investment. Indeed, if FL sold out today, it would make a handsome profit.

Most analysts are still sceptical that a successful takeover could be launched, but could they be wrong? FL is one of three Icelandic companies, run by fiercely competitive entrepreneurs, who have been trying to outdo each other on the acquisition trail. These are Hannes Smarason, chairman of FL Group; Magnus Thorsteinsson, chairman of Avion; and Palmi Haraldsson and Johannes Kristinsson, who control Fons Eignarhaldsfelag.

Avion, the parent of wet-lease company Air Atlanta and UK charter operator Excel Airways, has just taken a stake in US charter airline Casino Express.

Fons Eignarhaldsfelag, meanwhile, is in the process of adding Denmark‘s Maersk Air to its stable, which already includes recent acquisition low-cost carrier Sterling and Icelandic Express.

The owners of the three companies are fiercely competitive with each other, and Fons Eignarhaldsfelag’s rapid build up of a low-cost presence in Scandinavia will not have gone unnoticed by Smarason.

Smarason has not ruled out the possibility of buying easyJet. He told Iceland‘s Channel-2 television channel in mid-August that he would not exclude the possibility of a bid for easyJet, saying “anything can be bought”.

The chances of a hostile bid being successful seem remote, however, given that easyJet founder Stelios Haji-Ioannou and his family control 41% of the carrier. As one analyst puts it, “If it’s a case of a race to the 50% mark, there will only be one winner.”

So, any bid would almost certainly have to have the blessing of Stelios in order to succeed. Stelios has said that he has no plans to sell, not surprisingly, perhaps, describing the stock as “undervalued”. Stelios, of course, has developed interests in a number of other areas and recently opened the first easyHotel. Will he be tempted to cash in his easyJet shares to support other ventures?

As well as the need to persuade Stelios to support a deal, Smarason would also have to tackle the issue of brand ownership. Stelios owns the easyJet brand, so some sort of arrangement would have to be made here.

Then there is the little matter of strategic value. Few see much in the way of synergies. However, in the event of a successful takeover, Smarason would, if nothing else, give Thorsteinsson, Haraldsson and Kristinsson something to think about.  

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