Saturday 20 January 2018

Aer Lingus comes out fighting to stop Ryanair

John Mulligan

John Mulligan

AER Lingus said yesterday that shareholders should reject the surprise €694m bid from Ryanair as analysts and investors questioned whether Michael O'Leary's third bid would ever be allowed.

In the first volley from Aer Lingus in the takeover battle launched by Ryanair on Tuesday evening, the former state-owned airline said the hostile bid "undervalues" the airline.

Shares in Aer Lingus hit a 17-month high in Dublin yesterday after rising more than 15pc to hit €1.09. That was still 21 cent less than Ryanair's offer, which underlines doubts among many investors about whether the bid can succeed.

"There is significant uncertainty that any offer from Ryanair, if made, would be capable of completion," Aer Lingus said yesterday afternoon.

"The board, having considered the offer with its advisers, believes the offer, even if it is capable of completion, undervalues Aer Lingus."

The rejection came as politicians and unions rallied to defend the 75-year-old former flag-carrier's independence.

Taoiseach Enda Kenny told the Dail: "The Government would be concerned, obviously, in terms of competition, in terms of consumer facilities, in terms of price and access to the country."

However, he added that the Government, which owns 25.1pc of Aer Lingus, would be powerless to halt the takeover if enough shareholders were to back the move.

Ryanair's bid would earn the Government €174m of its €3bn privatisation target.

Mr Kenny said: "It is a minority share that the Government has. We don't have any veto over this.

"We don't have any blocking rights and the details of the offer made by Ryanair have not yet been considered collectively by government."

Education Minister Ruairi Quinn said that "competition is important" and added that he believed a Ryanair takeover would create "problems" if one group controlled 80pc of the air traffic out of Dublin.

Brian Devine, an analyst at NCB Stockbrokers, said Ryanair's €1.30 a share offer was "probably fair", despite the €1bn cash pile that Aer Lingus has sitting on its books.

Gerard Moore, an analyst at Merrion Stockbrokers, said that Ryanair "doesn't have much to lose" if its bid fails or succeeds.

Either the bid would force the Government to sell its stake faster than anticipated or Ryanair would gain control of Aer Lingus, he said.

Unions rushed to voice their opposition to the Ryanair move.

Siptu's aviation organiser, Teresa Hannick, insisted that it would be "madness" for any Government to put Michael O'Leary and Ryanair in charge of Ireland's air links.

The IMPACT union, which represents 1,600 Aer Lingus pilots and cabin crew, claimed that a takeover would be "bad for Ireland's economic recovery, for competition and for the travelling public".

Meanwhile, the Aer Lingus board -- headed by chairman Colm Barrington and which includes its chief executive Christoph Mueller -- queried whether Ryanair would even be able to complete the takeover.

It said: "The UK Competition Commission is currently investigating Ryanair's 29.8pc holding in Aer Lingus, with the result that Ryanair is now under a legal prohibition from undertaking any further integration with Aer Lingus without the consent of the Competition Commission."

Aer Lingus also faces having to fork out a significant amount of money to mount an official defence of the takeover bid when Ryanair makes its formal offer.

Between 2006 and 2008, when Ryanair made two unsolicited approaches to acquire its rival, Aer Lingus spent a total of €30m defending itself against the takeover offers.

Ryanair's biggest shareholders were yesterday remaining tightlipped on the airline's latest bid for Aer Lingus.

Capital Research and Management, which controls almost 17pc of Ryanair; Blackrock, which controls just over 5pc; Manning & Napier, which also owns just over 5pc; and Lloyds-owned Scottish Widows Investment Partnership, which owns about 3pc -- all declined to say whether they supported Ryanair's latest bid when contacted by the Irish Independent yesterday.

Businessman Denis O'Brien, who owns 3.8pc, also declined immediate comment, as did Abu Dhabi's flagship carrier Etihad, which owns 3pc.

"The alternative plot is that O'Leary knows that he won't get regulatory approval and this is just a plan to flush Etihad out and to get them to move and make a counter-bid," said Merrion Capital's Gerard Moore.

Meanwhile, leading UK and EU competition lawyer David Marks, of the law firm CMS Cameron McKenna, said the European Commission was unlikely to change its view on a possible merger.

The commission blocked Ryanair's initial 2006 attempt to take over Aer Lingus.

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