EasyJet shares plummeted during stock trading this morning after the company announced it was in long-term plans aimed at identifying several “long-term” growth and strategic opportunities.
The UK low-cost carrier told investors in a press release released this morning that its board has concluded that it needs to raise capital to further strengthen its balance sheet in one of the worst crises in the industry’s history because of the global epidemic of infectious diseases.
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BNP Paribas, Credit Suisse, Goldman Sachs, and Santander have taken over the rights issue entirely. This means that the company has already secured all the buyers necessary for this capital increase. In addition to this £1.2 billion issuance of rights, EasyJet (EZJ) has a revolving credit facility worth £400 million.
“This capital increase will enable us to leverage our core operational strengths and network strategy for our clients and accelerate long-term value creation for our shareholders,” said Johan Lundgren, CEO of EasyJet.
According to the announcement, the company had recently received an unsolicited takeover request, but the board unanimously rejected it because it was “very conditional” and that the deal was significantly undervalued. A source familiar with the matter told that the bidder was Wizz Air, one of EasyJet’s most prominent rivals in Europe.
EasyJet Shares Price Drop
The issuance of rights consists of 0.67 new shares and will be issued at a price of 410p per share of existing common shares, a 35.8% discount compared to the theoretical previous subscription price of 638p per share using the closing price using September 8th price for reference only.
According to the schedule provided by the company, shares will be converted to full rights on September 13, and new shares registered after the sale will be listed on September 28.
EasyJet stock recovered slightly from their first 14% decline today, but are still down 10% to 709p per share as existing shareholders are diluted by this rights issue.