The FL Group has sold its 16.9% stake in UK-based low-cost carrier easyJet on the back of a financial crisis in Iceland, putting an end to expectations of a bid for the low-cost carrier.
FL netted around €325 million ($400 million) for its easyJet stake, with an estimated profit of €140 million. “This gives an annual return of around 70%, far surpassing the firm’s target investment objective of 20%,” notes FL Group chief executive Hannes Smarason, adding that the proceeds from the sale will be channelled into new investments during 2006.
FL Group had built up its stake in easyJet through 2005, and was widely expected to make a bid for the airline until Iceland’s currency and stock exchange index took a dive earlier this year, with interest rates rising sharply. “They had to take care of their own liquidity position. Their resources were needed elsewhere,” says Nick van den Brul, analyst at London’s BNP Paribas.
Smarason insists that FL was not forced to bail out of easyJet, however, claiming that the sale “was primarily due to other investment opportunities”. He says: “As a major investor in both international and Icelandic equities, FL Group has followed some of the recent comments on the Icelandic economy. We are of the opinion that many of those comments do not take into account the strong assets that have been acquired by Icelanders abroad.” He further remarks: “FL Group’s own financial position remains very strong with significant liquid assets, more so now following the sale of easyJet and the proceeds from the equity offering late last year.” Smarason says that FL has liquid assets of around €600 million.
Van den Brul observes that easyJet, which has seen its share price drop by around a fifth since the FL sale, is back where it started before the Icelanders bought into the stock, sparking the bid speculation. “Their focus is on operational and earnings improvement,” he says, adding: “The market expects that they will deliver.” He notes: “They have been taking out costs, putting incentive mechanisms in for managers and tightened up the route network.” ■