Ryanair eyes up Aer Lingus HQ if deal succeeds

Ryanair would like to develop the 18-acre Aer Lingus headquarters building and surrounding land if a takeover deal between the two airlines goes ahead, write Emmet Oliver and Stephen Collins

The plans of Ryanair executives are included in a transcript of a recent investor's conference call during which Ryanair's €1.4 billion offer was discussed. The account of the call also reveals Ryanair was not on the lookout for an acquisition. "It wasn't necessarily in the plan that we go out on an acquisition, but I think this is a unique opportunity," a Ryanair executive is quoted as saying. The executive says there may be job losses from the merger but no figure is mentioned.

The land surrounding the Aer Lingus HQ could be used in several ways, the conference call was told. "There would be opportunities in the combined operation to develop those".

Meanwhile, a leading Dublin-based analyst John Sheehan of NCB said Ryanair could afford to offer €4 per outstanding share. Ryanair already owns 19.2 per cent of the equity. "A 13 per cent return would support a bid price of €3.71, equal to €4 per outstanding share and boost earnings by 21 per cent."

Mr Sheehan said synergies between the two airlines would benefit Ryanair by €50 million and based on that Ryanair could pay €3.48 per share, earn a 15 per cent return on its net outlay and boost earnings per share by 22 per cent.

Mr Sheehan also suggests a sweetened bid from Ryanair, involving offering Ryanair shares, could facilitate a deal. He points out that giving the Government or the Employee Share Ownership Trust (ESOT) stock instead could help them avoid larger tax liability.

Shares in Aer Lingus closed at €2.91, almost unchanged on the previous day. Ryanair shares closed at €8.50, down 1.5 per cent.

Sources suggested last night the ESOT and groups of pilots might purchase additional shares to block Ryanair's bid.

An influential analyst Mike Power of Dresdner Kleinwort said some Ryanair shareholders had sold their shares as a result of the Aer Lingus bid, although Ryanair have denied this.

"It's up against entrenched interests with over 40 per cent of Aer Lingus stock: government, employees and unions," he said.

He said Ryanair was also facing some resistance among its own shareholders. "I know some investors who have completely sold their Ryanair stake. Strategically, Ryanair's bid is a disaster. Michael O'Leary will need all of his determination to push this through," he added.

Meanwhile the Minister for Finance, Brian Cowen, told the Dáil yesterday it was expected that the European Commission would have jurisdiction over whether a merger between Ryanair and Aer Lingus would be legal under competition rules. He said the Departments of Transport and Finance were preparing a case for submission to the Commission.

Mr Cowen said the Government was opposed to the takeover and he added that there were still a lot of obstacles in the way.

"The Government remains fully committed to competition in aviation markets and will not sell its shares in Aer Lingus. It is vigorously opposed to the emergence of a new monopoly in Irish aviation," said Mr Cowen.