Ryanair pulled its €1.4 billion offer for Aer Lingus last night after the European Commission said the deal raised "serious competition concerns" and could reduce choice for airline passengers.
A detailed "phase two" investigation of the deal is to take place, which is likely to lead to months of delay. This more in-depth investigation, under EU merger regulations, can run for 90 working days before the commission must make a decision.
In a statement, Ryanair said "all acceptances of the offer received to date are void", but it said that if the commission cleared the deal after its phase two investigation, it "intends to make a further offer for Aer Lingus". To make a second offer, it will need the consent of the Takeover Panel.
Aer Lingus and Minister for Transport Martin Cullen welcomed the commission's decision. Aer Lingus said it was in line with its own views.
The commission said an "initial market investigation" had found that the proposed acquisition would raise serious competition concerns and could "reduce choice for consumers and could give rise to higher fares".
A commission statement said higher fares might be prevented if the two carriers remained separate.
The final decision of the commission rests on whether it believes the deal would significantly impede effective competition within the European Economic Area or a substantial part of it. The decision to open an in-depth inquiry does not prejudge the final result of the investigation, the statement added.
"My main priority on this case is to make sure that consumers would continue to enjoy a competitive choice of airline services," said competition commissioner Neelie Kroes.
The statement pointed out that one of Ryanair's bases is Dublin and Aer Lingus also has substantial operations based there.
"The proposed takeover, consisting of the purchase of shares in the market and a public offer, would bring together the two main airlines operating out of Ireland, thereby leading to important overlaps on a large number of European routes. On many routes the carriers are the only two competitors," said the commission statement.
The proposed merger could lead to the elimination of actual and potential competition between the two carriers on a large number of routes out of Ireland, as well as eliminate current base competition at Dublin airport, the statement added.
It said Ryanair had suggested various remedies to allay competition concerns - these are believed to include selling slots at several airports. But the commission statement suggests these do not go far enough and although improvements have been suggested by Ryanair the commission needs more time to study these.
Ryanair has declined to comment on what slots it might cede as part of any Ryanair-Aer Lingus deal. But reports from Brussels suggest slots are being considered at airports such as London Heathrow, Stansted and those serving Frankfurt, Paris, Milan, Rome, Bratislava and Barcelona.
Ryanair is currently sitting on a 25 per cent stake in Aer Lingus. The low-cost airline has always said its aim is to be in majority control, although chief executive Michael O'Leary said it would be relatively satisfied with a substantial minority stake.
