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As British Airways’ owner IAG Group’s bid for Aer Lingus moves forward, Irish low-cost carrier Ryanair, which holds a 29.8% stake in the Irish legacy carrier, has suffered a big setback which could force it to sell a large portion of its holdings in the legacy carrier at a discount.
The UK Court of Appeals ruled on June 11 in support of UK’s Competition and Markets Authority (CMA) requiring that Ryanair sell down its shares of Aer Lingus to 5%.
The case has been open since 2013, when the UK’s Competition Commission determined that Ryanair had undue influence over Aer Lingus, stifling competition.
Simon Polito, Competition Commission Deputy Chairman and Chairman of the Ryanair/Aer Lingus Inquiry Group, said at the time: “We consider that there is a tension between Ryanair’s position as a competitor and its position as Aer Lingus’s largest shareholder, and that Ryanair has an incentive to weaken its rival’s effectiveness as a competitor. Ryanair’s minority shareholding affects Aer Lingus’s commercial policy and strategy in various ways that could be crucial to Aer Lingus’s future as a competitive airline. We were particularly concerned about Ryanair’s ability, either directly or indirectly, to impede Aer Lingus from combining with another airline to build scale and achieve synergies to remain competitive.”
This claim that Ryanair could potentially impede the sale of Aer Lingus was upheld in yesterday’s decision, which Ryanair has described as “ridiculous.”
“Today’s CMA decision rejecting Ryanair’s request to review its order to divest Ryanair’s 29.8% minority stake in Aer Lingus is manifestly wrong and flies in the face of the current IAG offer for Aer Lingus,” said Ryanair Spokesperson Robin Kiely. “When the only basis for the CMA’s original divestment ruling was that Ryanair’s minority shareholding was or would prevent other airlines making an offer for Aer Lingus, the recent offers by IAG for Aer Lingus totally disprove and undermine the bogus theories and invented evidence on which the CMA based its untenable divestment ruling.”
Ryanair has called on CMA Chairman Polito to correct “false and misleading” claims about the scope of influence that Ryanair might have on any potential sale of Aer Lingus to IAG Group.
“Both Simon Polito and the CMA are attempting to defend the indefensible,” said Ryanair’s CEO, Michael O’Leary. “The sole basis for their 2013 divestment decision was (redacted evidence) that Ryanair’s minority stake was or would prevent any other airline making a bid for/or acquiring control of Aer Lingus. This bid process – which the CMA contended ‘could not take place’ — is now in fact taking place, but Mr. Polito and the CMA have again moved the goal posts to argue that Ryanair can somehow block an IAG bid for Aer Lingus from succeeding when it is patently clear that as a 29% shareholder, Ryanair cannot prevent IAG acquiring control of Aer Lingus.”
“Mr. Polito,” O’Leary added, “should now explain how the CMA can defend this divestment decision when the IAG offer has blown it out of the water. He should also withdraw his false claim that a 30% shareholder can block a takeover bid, or decide whether any takeover offer is successful or otherwise.“
Ryanair has announced that it will once again appeal the decision, and also repeated its position on the proposed IAG offer for Aer Lingus which is that Ryanair has not received a proposal from IAG to acquire its stake in the legacy carrier. “[I]f and when we do then the Board of Ryanair will consider any such proposal on its merits in the best interests of Ryanair’s shareholders,” Ryanair states.
IAG Group’s CEO Willie Walsh was CEO of Aer Lingus from 2001 to 2005, when he left Aer Lingus to and became CEO of British Airways.
The relationship between Aer Lingus and Ryanair has always been contentious, and had previously made a failed attempt to buy a control share of the legacy carrier, also determined to be anti-competitive. Last summer, Ryanair’s former Deputy CEO Howard Millar referred to the failed acquisition as “one of the best things that never happened” to Ryanair.
For now, the court’s decision has only served to further delay the sale of Aer Lingus to IAG. The legal action Ryanair will now initiate, O’Leary told Reuters, “certainly rules out a forced divestment in the next 6-12 months.”
O’Leary also stated that the decision would not impact Ryanair’s plans to negotiate IAG’s offer of €2.55 a share, which Walsh has previously stated is the highest price the group is prepared to pay to acquire Aer Lingus. “There is always the potential that the price could change, but if the price changed it would change for all shareholders,” O’Leary said.