Skift Take

Aer Lingus doesn't have much to offer potential saviors -- no majority stake, no willingness to cede control. And it's choosing the wrong fear tactic to warn consumers about the take-over; when was the last time Ryanair raised fares? Fees, yes, but fares?

Aer Lingus Group Plc said it’s in touch with investors willing to buy stakes in the carrier as it seeks to fend off a 694 million-euro ($849 million) takeover bid from Irish discount rival Ryanair Holdings Plc.

Aer Lingus has identified institutions interested in taking holdings of as much as 10 percent which could become available should the Irish government opt to sell its own 25 percent stake, Chief Executive Officer Christoph Mueller said.

“We’d place it in the market,” Mueller said in a telephone interview. “We’ve identified a lot of demand for Aer Lingus shares in Europe, but also in the U.S., very surprisingly.”

With Ryanair’s 29.8 percent holding in Aer Lingus making it the No. 1 shareholder, the low-cost operator could take control of its rival even without buying government stock. Mueller said that Etihad Airways, with a 2.99 percent stake, has limited room for maneuver because of a rule that caps ownership of European Union airlines at 49 percent for investors outside the block.

“Etihad’s problem is that they cannot take a majority,” the CEO said today. “If you want to respond to a majority takeover bid, that’s a restriction. Generally we would not favor any one shareholder, but a competitor taking a majority is not in our interests. For the rest we have absolutely no restrictions.”

Aer Lingus Airbus at Schiphol

An Aer Lingus plane at the gate at Amsterdam’s Schiphol. Photo by Pascal.

Irish Transport Minister Leo Varadkar said on May 1 after Etihad purchased its holding that the involvement of the Abu Dhabi-based carrier was a “good thing.” He added that the state was ready to sell its stake at the right price and time, though wasn’t in talks with the Gulf airline.

‘Bad Deal’

Aer Lingus was trading unchanged at 1.07 euros — 23 cents below the bid price — as of 12:07 p.m. in Dublin, where both it and Ryanair are based. The stock has advanced almost 69 percent this year, valuing the company at 567 million euros.

Ryanair traded down 0.7 percent at 4.09 euros. Shares of Europe’s biggest discount airline have added 13 percent so far this year for a market value of 5.9 billion euros.

Aer Lingus said today in a statement that Ryanair’s offer of 1.30 euros a share issued yesterday undervalues its business.

“We’re profitable and our earnings potential should reflect a higher share price,” Mueller said, adding that the bid amounts to “a very bad deal,” given that his airline has sufficient cash to pay out as much as 1.9 euros a share from its balance sheet.

Ryanair is resuming its pursuit of Aer Lingus after EU regulators blocked two previous takeover attempts, and Mueller said the new proposal remains “incapable of completion.”

Price Penalty

Michael O’Leary, Ryanair’s CEO, says chances of clearing antitrust hurdles have been boosted by mergers among other European carriers, falling traffic in Dublin that leaves room for new entrants, and the government’s plan to sell its stake.

A takeover would also push up fares at the worst possible time for the Irish economy, Mueller said.

“We know exactly what is going to happen to prices,” the CEO said. “Taking the travel propensity of the Irish population — which is the highest in Europe — into account, that would be very, very counterproductive, particularly for the overall economic turnaround we are trying to achieve here.”

The bid raises clear monopoly concerns since Aer Lingus and Ryanair overlap on 75 percent of routes, he said, adding that competition between the two would “simply cease to exist to Brussels, to London, and so on.”

In selling its stake in Aer Lingus the government would “certainly consider connectivity for Ireland,” as well as the price, and has always favored a two-carrier model, Mueller said.

Morgan Stanley and Davy Corporate Finance are advising Ryanair and its Coinside bid vehicle. Aer Lingus is being advised by Goodbody Stockbrokers, Rothschild and UBS AG.

Editors: Chris Jasper, Chad Thomas. To contact the reporter on this story: Finbarr Flynn at [email protected]. To contact the editors responsible for this story: Chad Thomas at [email protected]; Douglas Lytle at [email protected].


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Tags: aer lingus, ryanair

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