Ryanair's chances of taking control of its rival are looking less likely, writes Emmet Oliver

On Wednesday morning in one of the small offices at Dublin airport occupied by the trade unions, an official is reported to have cut out a picture of Denis O'Brien from his newspaper and stuck it on the wall in an open sign of gratitude.

Another union rep said he was looking forward to toasting the founder of Esat Telecom later that evening with a glass of champagne, after O'Brien spent approximately €32 million building up a 2.1 per cent stake in Aer Lingus.

While the share purchases were described as the latest twist in an extraordinary tale, in reality the market in Dublin has been buzzing with talk about a high-net worth individual plunging into Aer Lingus ever since Ryanair launched its €1.4 billion bid from a tiny room in Jurys Hotel on October 5th.

O'Brien was top of most people's lists and when he gave an interview to a Sunday newspaper 10 days ago saying, "If I was head of the Esot, they should just go and buy 3 or 4 per cent this morning and it's all over", the speculation increased.

Market observers wondered why O'Brien didn't simply take his own advice, particularly when he was prepared to publicly state his outright opposition to the idea of Ryanair and Aer Lingus coming together. "They should be separate", O'Brien has said of the two carriers.

On Tuesday morning, O'Brien did take his own advice and placed an order for 9.1 million shares through Goodbody Stockbrokers at €2.95 a share. A statement released later by him said his main motivation for buying the shares was to maintain competition between Aer Lingus and Ryanair.

Now it emerges that O'Brien's statement, which may have looked innocuous on the surface, is to be investigated by the Takeover Panel.

They are seeking to find out whether certain parties are acting in concert, namely O'Brien, the pilots, the Esot, individual staff shareholders and of course the Government.

Nobody at this stage knows who is acting in concert - if at all - but the sense that parties may have an unfolding strategy in place is starting to concern Ryanair, at least in private. While deputy chief executive Michael Cawley told journalists on Wednesday its bid would still be successful, the sense of the unknown is starting to spook Ryanair executives and last night the airline's lawyers were burning the midnight oil to get an offer document out today, or at least early next week.

While Ryanair has €2 billion in cash to play with and time on its side, there is a real sense it has lost the initiative since it first announced its bid back on October 5th. The chief executive, Michael O'Leary, has spent a significant time this week in the US, although the airline denies his trip has been about quelling a revolt among a group of nervous shareholders.

While the Ryanair bid still has a reasonable chance of success - particularly if it is sweetened with a paper element - any reasoned analysis would have to conclude that the number of obstacles facing the low-cost carrier has increased since the October 5th announcement, not decreased.

In fact, it is hard to discern any event from the series of happenings since October 5th that has gone in its favour - with the possible exception of the Takeover Panel's intervention and the letter of warning from the Pensions Board to Aer Lingus pilots telling them to behave according to sound investment principles.

To many people, there will be an irony in the idea of regulators like the Pensions Board and the Takeover Panel taking steps that indirectly benefit the Ryanair cause.

The Government and the airline on the other hand are in private exultant at the turn of events. While some of them are sceptical of O'Brien's true motives, others do not care and are proceeding along the basis of "my enemy's enemy is my friend". There is clear relief among the Government and their advisers that after being wrong-footed by the original Ryanair announcement, the momentum has for the last 10 days swung back in their favour.

Today, the Government meets EU competition officials to start outlining its case against the Ryanair offer. One Government source said this week: "The fightback is taking place on two levels. One is in the competition arena; the other is what is happening independently of us on the share register."

Because Ryanair is for now tied into its €2.80 a share offer, the airline has failed to advance beyond its 19.2 per cent stake. The shares have not dropped below €2.80 since Ryanair made its initial announcement. In fact, most of the time the shares have been trading above €2.90, sometimes touching €3 a share.

While none of the parties will admit they are acting in concert, the loose alliance opposed to the Ryanair bid now has about 45 per cent of the shares. It could be more, based on the Aer Lingus share register which is heavily fragmented and consists of large numbers of small shareholders and hedge funds.

It is worth remembering that about 11 per cent of Aer Lingus upon flotation was owned by retail investors of differing financial profiles. It is obvious that some of this group have sold out since, but it must remain a substantial share nevertheless. If even half of this group, possibly less, chose not to opt for the Ryanair bid for emotional reasons, getting over the magic 50 per cent becomes even more difficult.

While Cawley and others at Ryanair speak bullishly about the bid's chances, some Ryanair analysts are already facing up to life without Aer Lingus. "Without" in this sense meaning not having full control. This is not something analysts believe Ryanair should be happy about.

A note from Deutsche Bank yesterday seems to suggest that a minority stake will only leave Ryanair with all the disadvantages of Aer Lingus and very little of the benefits. "We believe this position could put too much pressure on Ryanair politically and that there is too great a risk of a disruption to its cost base."

It adds: "If Ryanair continued to hold a substantial but non-controlling stake in its biggest local competitor, we believe that both airlines would have to compete very aggressively to head off any accusations of collusion. Operational issues or even strikes by disgruntled Aer Lingus employees . . . could hit the value of Ryanair's stake without it being able to correct them."