Aer Lingus has 'duty' to talk to Ryanair on bid


WHILE BRIAN Lenihan and Noel Dempsey remain coy about how they view Ryanair's latest offer for Aer Lingus, at least one shareholder is willing to give his view on what should happen next in the saga.

"Our basic view is that there is nothing to be lost at this stage by Aer Lingus's management sitting down with Ryanair management ," Nigel Hart, founder of New York-based ReachCapital Management, told me earlier this week. ReachCapital owns just under 2 per cent of Aer Lingus.

"They have a fiduciary duty to at least sit down and discuss why the offer has been made and the potential benefits. Instead, they have dismissed it out of hand.

"Clearly, if they don't sit down and talk, then the market will look at Aer Lingus as a semi-government company and will value it accordingly. If nothing happens then the stock could slip back to €1."

Aer Lingus's board has rejected Ryanair's €1.40-a-share offer, arguing that, as a profitable airline with strong cash reserves (it has net cash of €800 million on its balance sheet), it is perfectly valid for it to continue as an independent airline.

Hart is not so sure. "Aviation is a harsh business at times and there is no certainty that they won't burn their cash over the next year or so," he said."There will be plenty more bankruptcies in the airline industry."

Hart said that he had informed Goodbody Stockbrokers, an adviser to Aer Lingus on the takeover approach, earlier this week of his views. "The management of Aer Lingus are very clear of where I stand," he added.

Based in New York, ReachCapital is also a shareholder in Ryanair, holding about 1 per cent of its stock. A deal would be something of a win-win for the investment house, which manages about $500 million in client funds.

Hart bought about 3 per cent of Aer Lingus at the time of the IPO in late 2006. He subsequently sold half of this stake to Michael O'Leary at about €2.40, as Ryanair built its near 30 per cent stake in its rival.

ReachCapital has since topped up its Aer Lingus holding at between €1.20 and €1.40 and with the shares now trading at just under €1.50, it is sitting on a tidy profit.

So why not sell now and take the profit? "Because we're hoping for a higher price," he said candidly.

"Our fundamental long-term valuation of the stock is greater than €2. But that's a different place to where it is today."