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EasyJet shares soar on IAG takeover reports

An Easyjet aircraft approaches Josep Tarradellas Barcelona - El Prat airport the day before a cabin crew strike, while it passes next to a Stop traffic sign, near Barcelona, Spain, June 30, 2022. REUTERS/Albert Gea
Easyjet shares fly on bid speculation. Photo: Albert Gea/Reuters

Shares in budget airline operator easyJet (EZJ.L) surged over 6% this Monday on reports that the group could be a takeover target for International Consolidated Airlines Group (IAG.L).

Speculation is mounting that British Airways-owner IAG could look to acquire smaller rivals such as easyJet or Portugal's TAP, according to the Times.

“Reports that easyJet could be a takeover target for International Consolidated Airlines make perfect sense,” AJ Bell investment director Russ Mould, said.

“The pandemic has created concerns about the future of business travel, with companies globally realising they don’t need to hold so many meetings in different locations.

"It’s far easier, cheaper and more environmentally friendly to hold many conversations over Teams or Zoom than get on a plane.

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“Therefore, companies like International Consolidated Airlines need to rethink their future sources of revenue as they may find that business travel doesn’t match pre-COVID levels.

“Owning EasyJet would significantly boost International Consolidated Airlines’ position in the leisure market and give it access to many prized airport landing slots,” he added.

Mould suggested : “The key challenge is funding such a deal. International Consolidated Airlines is already ladened with large debts and shareholders may prefer it to pay down these borrowings rather than spend billions on buying another airline such as easyJet.

“Shares in easyJet earlier this month traded at their lowest levels since 2011, which is the market’s way of saying it believes the company’s recovery from the pandemic will be very slow.

“Many airlines will have been watching easyJet’s share price collapse and weighing up their options.

"An opportunistic takeover bid now could net them a bargain in the long term, but equally it’s a bold move to take given the gloomier economic outlook which could cause further disruption to earnings over the coming year.

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“Wizz Air has been linked as a potential suitor for easyJet in the past and there is also logic behind a tie-up of those two companies. Eastern Europe-focused Wizz Air could strengthen its position in Western Europe by owning EasyJet.

"Additional airlines may also find a good rationale for owning EasyJet. This suggests International Consolidated Airlines will face competition from other parties should it decide to make a move on the low-cost airline operator.”

Watch: EasyJet launches 28-day all inclusive holiday 'cheaper than staying in UK'