Shares in British low-cost carrier easyJet jumped as much as 11.4% on Monday after the airline agreed in principle to a 5.5 billion-pound ($7.34-billion) takeover bid from Castlelake over the weekend, but investors worried the deal might struggle to secure approval.
EasyJet said on Sunday it was prepared to accept U.S. investment firm Castlelake's sweetened bid of 6.90 pounds a piece, potentially ending lengthy negotiations and reshaping Europe's aviation industry.
The bid was a nearly 24% premium to easyJet's close on Friday, and around the 7 pounds price some investors were reportedly holding out for after four previous Castlelake proposals were rejected.
EasyJet, which rose to as much as 6.22 pounds on Monday, was up 9.7% at 6.12 pounds as of 07:48 a.m. GMT.
A shareholder who declined to be named noted that current levels indicated the market was pricing a more than 30% probability of the deal falling through.
Still, the stock has gained more than 50% since Castlelake's interest became public in late May.
The potential take-private deal, which also includes a partial equity alternative, comes when airlines are grappling with sharply higher fuel prices and margin pressure linked to the Iran conflict.
JPMorgan analysts raised concerns about how aviation-focused lender Castlelake and easyJet would meet European Union ownership requirements and agree on a structure, with founder and controlling shareholder Stelios Haji-Ioannou's views also unclear.
EasyJet said on Sunday that Castlelake had agreed to a "best endeavours" commitment to obtain regulatory clearances.
Haji-Ioannou declined to comment on Monday.
Castlelake has previously said it would own 49% of the bidding vehicle with the remainder held by two EU nationals, former easyJet chief operating officer Peter Bellew, and senior industry executive Mark Breen.
EU regulations require airlines operating in the bloc to be majority-owned and controlled by EU nationals.
JPMorgan also noted that approval from shareholders was not guaranteed, with prospects of a counter-bid also open, or other carriers looking to buy parts of easyJet.
"While a decent premium to the lackluster trading of recent years, it still represents a deep discount to the share price of the late 2010s, a sign of how in need easyJet is for someone to take the controls and plot a more successful flight path," said Chris Beauchamp, chief market analyst at trading platform IG.
Castlelake must formalize its offer by Aug. 3 or walk away under British takeover rules.
