EasyJet shares jumped 10% Monday after the board agreed to let Castlelake buy the airline for $7.3 billion. The market celebrated this like it was new information. It was not new information.
Castlelake is a private equity firm. Private equity firms buy things when those things are cheap. EasyJet was cheap. Now EasyJet is less cheap because everyone who reads headlines decided this was their moment to understand airline valuations.
The stock traded at one price Friday. Someone offered more money. The stock now trades near that higher price. This is called arithmetic. Retail traders are calling it a buying opportunity.
Here's what happened to your technical indicators: they meant nothing Friday, they mean nothing today, they will mean nothing Wednesday when the next headline drops and you pretend that one also required immediate action. The 50-day moving average did not predict this. The RSI did not predict this. Your Discord group with the guy who posts rocket emojis definitely did not predict this.
EasyJet operates budget flights across Europe. The planes were worth something Friday. Today they are worth the same thing, but now a private equity firm owns them instead of public shareholders. The planes do not fly faster. The tickets do not cost less. The napkins are still made of tissue paper that disintegrates when you touch it.
Castlelake looked at the balance sheet and saw an entry point. You looked at a headline and saw a lottery ticket. One of you will make money on this trade.
The deal is not final. It is agreed in principle, which means lawyers will spend six months arguing about indemnification clauses while you stare at a position that is up 9% and convince yourself you are a genius for buying it at up 8%. The gap between those two numbers will pay for half of one Castlelake associate's afternoon coffee.
Photo by on Unsplash
Leave a Comment