Thursday 19 April 2018

Aer Lingus CEO insists Ryanair bid is a 'bad deal' and will be blocked by EU

Aer Lingus chief executive Christoph Mueller
Aer Lingus chief executive Christoph Mueller
Peter Flanagan

Peter Flanagan

AER Lingus has strongly rejected Ryanair's bid for the airline, claiming it will fail competition regulators and in any case is a "very bad deal" for investors.

Ryanair formally submitted an offer of €1.30 a share for the remaining 70pc of the airline it does not own on Tuesday. That values Aer Lingus at €694m, but yesterday Aer Lingus chief executive Christoph Mueller said the offer was way off what he would consider a fair bid for the company, citing the €1bn cash pile the airline now has.

"The bid significantly undervalues Aer Lingus. The gross cash value of the airline is currently about €1.87bn so any bid would have to get to that level just to be competitive.

"Ryanair would also have to pay a "control premium" which is accepted practice when taking over an entire business. Shares are more valuable when they give you control of a business rather than just having a holding in a company," he added.

Even if Ryanair was to raise its offer price to the higher level, though, Mr Mueller said he and the board have received legal advice that EU regulators will strike down a Ryanair offer for the second time.

The EU blocked Ryanair's first bid for Aer Lingus in 2006 on the basis that it would compromise competition in the Irish airline industry.

British regulators have also begun a probe into whether Ryanair should be forced to sell its holding in Aer Lingus, although the probe has been put on hold until the current bid plays out.

In its offer sheet, Ryanair highlighted the changes in the European economy and the aviation industry since their second bid failed in 2006 as reasons for why this one should succeed, but Aer Lingus claimed these were precisely why the bid will fail again.

"Ryanair's 2006 offer that was blocked by the European Commission was made at the peak of the economic boom. Since that time, traffic on Irish routes has fallen 25pc, and a number of airlines have pulled out of Ireland.

"As a result, the overlap between Aer Lingus and Ryanair has increased so the number of routes that Ryanair would monopolise has sharply increased.

"We have been given legal advice that the European Commission is likely once more to prohibit the Ryanair offer, and this is not therefore a credible offer which is capable of completion."

Transport Minister Leo Varadkar raised eyebrows with his apparent willingness to take seriously Ryanair's proposal on Tuesday, but Mr Mueller said he was not concerned by that.


"The Government has to consider it properly but Aer Lingus benefited for many years from a monopoly at the expense of passengers who had to pay high fares, so why go back to the monopoly that a Ryanair takeover would create?," he added.

Aer Lingus is considered a less attractive investment for its peers given the 25pc government holding, but the chief executive said he had seen high demand for shares from both Europe and the US, although the lack of liquidity in the shares was holding back trading.

If the Government was to put its holding on the market, though, the airline would be able to place the shares quite easily, he claimed.

"If you look at all the mergers that have taken place in our industry over the last decade, in nearly every case at least one of the firms have been in trouble to some degree, and that is not the case here," he added.

By the close of trading yesterday Aer Lingus shares were unchanged at €1.07 -- 23c below the offer price. Ryanair was off 0.9pc at €4.09.

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