Ground Floor: I feel bad that I didn't see it coming, and the fact that nobody else seemed to have either doesn't make me feel any better about being gobsmacked by Ryanair's bid for Aer Lingus.
To be fair, Michael O'Leary denied any interest in buying it back in August, having already said low-cost airlines shouldn't make acquisitions because this would add costs and complexity to their structure.
There's no doubt that both of these things would happen if Aer Lingus was to come into the Ryanair fold. In an interview with BBC, O'Leary said that one of the key things that they would do with Aer Lingus would be to cut costs which doubtlessly left the airline's employees (who are talking about buying up more shares to block the bid, but who are sitting on a paper profit of 27 per cent thanks almost entirely to O'Leary!) feeling uneasy. The complexity level of the deal is already sky high.
Many people are wondering if the bid is a vanity project for O'Leary, who must surely be enjoying the fact that he has put the wind up so many people in the airline that he has constantly fought and criticised, the Government which he has constantly lampooned and the DAA, another butt of his ire. And I can see where the fun would come from. At the same time though, O'Leary does not seem to be the kind of man who would let vanity pressure him into putting €1.48 billion on the table. If he's bidding for Aer Lingus, it is surely because he sees potential in the deal and because he has set his own value on assets (like those Heathrow slots) that the carrier holds.
Frustrating for everyone deeply involved with the Aer Lingus flotation, however, has to be the fact that a 27 per cent return on your investment in the space of a week is very tempting. And the shareholders, both private and institutional, could well be a very fickle bunch. When I wrote about my uncertainty about the opportunities for a quick buck a couple of weeks ago, I hadn't factored Ryanair into the equation.
Now O'Leary has set his own valuation on the company and many shareholders will feel that it's a perfectly acceptable one, although most will aim to make him pay more - very few companies are taken over at the initial bid price, especially in a hostile bid. Normally, of course, the takeover bid happens later in the cycle, not immediately after the company is floated. And the €2.20 initial pricing, so clearly a no-frills price acceptable to everyone, is looking like a fire-sale on the basis that O'Leary's initial €2.80 offer is being rejected by all and sundry as "undervaluing" the company. A week is a long time in the stock market! When companies float, there are always the usual platitudes about access to new cash and new opportunities. There was no doubt that Aer Lingus needed the cash and that the Government is a dreadful shareholder as far as making innovative corporate decisions are concerned. But once you sell shares in the company, you lose control of what happens to it and there's no point in thinking that, just because you still retain an interest, future developments will be along the lines that you always wanted. That's why so many family firms struggle when they come to the market and why, sometimes, companies de-list. The allure of a flotation is like the allure of being part of the jet set - sounds great but isn't necessarily as glamorous as you thought it might be.
That other sector of Irish interest - telephony - was also turning on a sixpence last week. I was one of the people who initially registered an interest in Smart's broadband product and was also one of the people who balked at the idea of having to change my phone number. It was always a dealbreaker as far as I was concerned and for Smart's management group to think otherwise was like Aer Lingus's management team thinking that people would fly with it because it was the "national" carrier, even at a time when its prices were quadruple that of Ryanair's. The fact, however, that it was Eircom that pulled the plug on Smart's customers left a bitter taste in everyone's mouth, although presumably the Eircom executives were chortling with delight. Nevertheless, the situation where one provider can switch off another is ludicrous and highlights the inadequacy of ComReg in the whole sorry debacle. The current deal, whereby Brendan Murtagh will buy the company for a nominal amount and assume its liabilities, is probably the best that Smart can achieve.
Smart had hoped to be a big player in the Irish telecom market and was the first to offer a single billing service to customers. Since its inception in 2000, it had become a recognisable brand name, even if it hadn't managed to sign up the number of residential customers it needed to make the profit and loss account look in any way healthy. But being a recognisable brand isn't enough.
Smart was listed on London's Alternative Investment Market (AIM) - a market for smaller companies looking for new capital for growth and expansion. AIM is very successful as a medium for start-up companies to raise capital as its regulatory environment is less stringent than a full listing on the LSE. Potential applicants are reminded that if the company gets listed on AIM, it will "become susceptible to market conditions and may find the price and liquidity of its shares are affected by factors outside its control".
How you deal with factors outside your control always sorts out the wheat from the chaff in business. It's something Smart and Aer Lingus will undoubtedly learn more about in the future.
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