Aer Lingus rebuffs second IAG offer

International Consolidated Airlines Group (IAG) is expected to make a further takeover approach to Aer Lingus despite a second rebuff from the Irish flag carrier.

IAG confirmed on Friday that it submitted a revised indicative offer of €2.40 a share – €1.28 billion in total – for Aer Lingus, subject to certain conditions, but was rejected by the board.

Its move followed an initial approach in mid-December, when it indicated that it would pay €2.30 per share for the airline, which was also rejected.

It is understood that the two sides remain in contact, and industry analysts expect that IAG could come back with an increased indicative bid for Aer Lingus in coming days.

Tempting

David Holohan of Merrion Stockbrokers said this week’s positive figures released by Aer Lingus should help tempt IAG back in with a revised offer.

Aer Lingus said that it carried a record 11 million passengers in 2014 even as it hedged its fuel needs for this year, cutting €52 million from the bill.

The same figures prompted the airline’s biggest institutional shareholder, London-based fund Crystal Amber, which holds 3.5 per cent, to boost its estimate of its value to between €1.47 billion and €1.6 billion from an earlier price tag of over €1.3 billion.

According to Crystal Amber director Richard Bernstein, based on this week’s statements from Aer Lingus, the fund’s numbers now indicate that a bid should be priced between €2.75 and €3 per share.

He pointed out that Aer Lingus had €400 million net cash on its balance sheet, a sum that its fuel savings could push up to €450 million this year.

“The company is clearly in very good shape. It’s a terrific brand and it’s a well-run airline,” Mr Bernstein said.

Mr Holohan suggested that a revised offer would have to be between €2.60 and €2.70 a share. He said IAG could be willing to go this far.

“From their perspective, that might not be unreasonable,” he said. “We believe that they want to buy Aer Lingus.”

However, some sources suggest that these values are based on the view that IAG would acquire Aer Lingus’s valuable Heathrow slots without any strings attached.

They say that the Government might only be willing to part with its 25.1 per cent in the airline if the new owner guaranteed that those slots continued to be used to connect the hub with Dublin, Cork and Shannon, instead of for more lucrative long-haul business. This could hit their value and that of their owner.

IAG released its statement on Friday in response to speculation sparked by a surge in the Aer Lingus share price. The stock closed 10 per cent up at €2.50 after investors bought 3.9 million equities following claims that the group had offered between €2.60 and €2.70 per share.

IAG, which is being advised by Goodbody and Deutsche Bank, said there was no certainty that any further proposal would be forthcoming.