FTSE down again, EasyJet rejects takeover approach and 888 wins the jackpot

“The FTSE 100 experienced its third day in a row of sharp falls as concerns about global growth come to the fore. The blue-chip index was down 1% at 7,020 with energy, financials and miners among the worst performing sectors – and all three driven by economic activity, which shows you how investors are thinking,” says Russ Mould, investment director at AJ Bell.

“The ECB will be in focus later today as it is expected to update on any plans to taper bond purchases. The US Federal Reserve is unlikely to be in a rush to start easing its economic support measures following the very disappointing August jobs numbers, but will Europe finally be one step up on this point?

International Consolidated Airlines was the biggest faller on the FTSE. The fact that EasyJet is raising more money to help to capitalise on growth opportunities would suggest that some of IAG’s peers are getting their ducks in a row to accelerate their recovery, whereas the British Airways owner is still plagued by high debts.”

EasyJet

“The UK takeovers keep on coming. EasyJet is the latest recipient of a takeover bid, although the suitor has already been fought off. Details are thin apart from we know it was a listed business making the approach as it was structured as an all-share offer. While the airline sector in general is still looking vulnerable, the best times to pounce on a rival is when sentiment is weak towards an industry.

Wizz Air looks a possible candidate to have made the bid given it is incredibly ambitious and EasyJet would provide it with much greater coverage of Western Europe, having already established a strong position in Eastern Europe. It is financially stronger than many of its rivals and owning EasyJet could turbocharge its growth.

“A US airline might also be interested in EasyJet given how that would facilitate geographical expansion at the click of a finger.

“And then there is International Consolidated Airlines which has talked about a desire to launch a low-cost airline operation. Rather than going head-to-head with EasyJet, why not simply own it? The risk with International Consolidated Airlines is that it is already sitting on massive amounts of debt and its shares are in the doldrums, so would EasyJet shareholders really want to take IAG paper?

“Finally, one cannot rule out Jet2 which is slightly smaller in market value than EasyJet (£2.5 billion versus £3.3 billion respectively), but strategically a sound fit.

“The competition authorities might have something to say about any UK airline looking to buy EasyJet, but that is part and parcel of takeovers these days.

“EasyJet is going cap in hand to shareholders instead and asking for money to put it in a stronger financial position to weather the current storm and support growth plans. Whereas the days of issuing new equity to raise more cash to see them through the pandemic are long gone for many companies, the airline sector continues to ask for more.

“Speculation there could soon be more relaxed rules around travelling outside the UK would suggest EasyJet’s rights issue is well timed. Get more cash now and take advantage of any boom in bookings potentially from the end of this month.”

888

“Five years after it tried and failed to buy William Hill in a joint bid with Rank, gambling group 888 has finally hit the jackpot. While a new agreement with William Hill must still be approved by shareholders, 888 now has clear sight of the catalysts to propel the business forward.

“For years 888 has languished in the shadow of its gaming peers, doing a decent enough job but never being strong enough to take the lead.

“By acquiring William Hill’s non-US assets, it gets the chance to spread its wings geographically, cross-sell products to a much larger customer base and potentially see investors willing to value the business on a much higher multiple of earnings.

“Scale matters in the world of gambling and this deal will accelerate 888’s position. Also helping its cause is the fact that 888 already has operations in the US where the growth opportunities are tremendous. Combined, these forces should push the group to a higher tier among the rankings of gambling groups.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.