Plenty of poker faces over fate of Aer Lingus

ONE MORE THING:IT SHOULDN’T come as a surprise that the board of Aer Lingus and the Minister for Transport Leo Varadkar are at one in expressing the view that Ryanair’s €1.30-a-share bid for its rival “undervalues” the airline. It’s rare that a company subject to a hostile takeover believes that the price offered is generous.

The State, meanwhile, wants the best price it can get for its 25 per cent stake, which is for sale.

The irony is that Aer Lingus, backed by the Government, turned down two higher bids from its rival – €2.80 a share in 2006 and €1.40 a share in 2008.

In both cases, no bid would have been enough to receive their support. Ryanair was rebuffed, primarily over competition issues but also because no one at Aer Lingus wants to work for Michael O’Leary.

Varadkar spoke yesterday of the bid undervaluing Aer Lingus.

This is somewhat curious given that he previously indicated that he wanted at least €1 a share for its stake, when the shares were trading below that level.

O’Leary’s bid offers a 30 per cent premium to that level.

Varadkar hasn’t ruled out accepting Ryanair’s offer, citing the need to consult with his Cabinet colleagues when they meet next Tuesday.

This is like a game of poker. Varadkar probably doesn’t want to sell the State’s holding to Ryanair but he does want to keep it in the game in the hope that it might put up the share price further and flush out another party, be it Etihad or someone else.

Meanwhile, Aer Lingus chief executive Christoph Mueller must have mixed views on the bid.

On the one hand, he has joined the board in rejecting O’Leary’s offer. On the other, Ryanair’s bid might help him net a tidy windfall.

Ryanair’s offer pushed Aer Lingus’s share price up to €1.05 by the close of trading yesterday from 94 cent on Tuesday evening, just before O’Leary made his move. Under a stock options scheme agreed before he joined the airline in September 2009, Mueller is entitled to an award of 500,000 Aer Lingus shares on September 7th if the price has been above €1 for 25 of the prior 40 days.

This seems likely if the Ryanair bid remains live to that point.

The exercise price is 57.3 cent a share. Based on yesterday’s closing price, this would give Mueller a paper profit, before tax deductions, of €213,500.