Aer Lingus rejects Ryanair's €748m takeover bid

Aer Lingus has rejected Ryanair’s €748 million takeover bid for the airline, saying the offer significantly undervalued the carrier.

In a statement this evening, the Aer Lingus board said it had considered Ryanair’s renewed €1.40 a share cash bid for the airline but was strongly advising shareholders against the offer.

The Ryanair bid represents a premium of around 28 per cent over the average closing price of Aer Lingus shares for the 30 days to November 28th.

The bid values the airline at €748 million - approximately half the €1.48 billion valuation placed on Aer Lingus by Ryanair in its first bid two years ago.

Ryanair already owns almost 30 per cent of Aer Lingus shares and said in a statement it is proposing a “merger of the two airlines into one strong Irish airline group under common ownership”.

Ryanair chief executive Michael O'Leary described Aer Lingus as an "isolated, uncompetitive, loss-making EU flag carrier which has deteriorated dramatically as a result of high oil prices and the global recession".

Mr O'Leary said: "This proposed merger of Ryanair and Aer Lingus will form one Irish airline group with the financial strength to compete with Europe's three major airline groups - Air France, British Airways and Lufthansa."

The Aer Lingus board said: "Ryanair's prior offer for Aer Lingus lapsed on 20th December 2006, having failed to achieve antitrust clearance.

"Following a thorough review, the European Commission prohibited Ryanair's takeover of Aer Lingus on 27th June 2007."

"Ryanair is now appealing the European Commission prohibition. Consequently, this new lower Offer is not capable of completion," it said.

But ReachCapital Management, which holds a 2 per cent stake in Aer Lingus, has called on the management of the airline to “seriously consider Ryanair's offer and any other offers which may materialise”.

In a statement Nigel Hart, Partner with ReachCapital Management, said Ryanair was well run and it was in everyone’s interest that capital was allocated efficiently.

Under this proposal Aer Lingus would retain its brand name and Ryanair says the Government, ESOT and other employee shareholders would get €325 million under the deal. Aer Lingus's chairman would also sit on the Ryanair board, the statement adds.

Ryanair's statement says it has requested an early meeting with the Aer Lingus chairman, board and ESOT trustees to explain the rationale for the bid. The Government holds a 25 per cent stake in Aer Lingus and the ESOT approximately 14.2 per cent.

Should the merger go ahead, Ryanair says it would double the size of the Aer Lingus short-haul fleet to 66 aircraft over the next five years and create up to 1,000 jobs.

The approach comes two years after the Aer Lingus board rejected a previous takeover attempt from Ryanair, calling the offer “ill-conceived, contradictory and anti-competitive”.

Aer Lingus floated on the London and Dublin stock exchanges in 2006, and Ryanair bought up shares before going public with its takeover interest.

Ryanair withdrew the bid after the European Union started a competition investigation because both carriers are based in Dublin and between them would have controlled more than 80 per cent of European flights to and from Dublin airport.

Minister for Transport Noel Dempsey said the Government’s aviation policy was that passengers should have competition in terms of service provision.

“The government has the shares in Aer Lingus for strategic reasons. One of the strategic reasons was to ensure that Aer Lingus held on to the slots at Heathrow. We also wanted to prevent hostile bids," he said.

Minister for Health Mary Harney said while the bid was a matter for the shareholders, it was great to see such confidence expressed in the future of the Irish economy.

Since Ryanair’s first bid there have been a number of mergers between European airlines including Air France and KLM, suggesting that the regulatory climate may have changed.

Airlines have struggled over the last two years due to high oil costs and a recession, leading to the collapse of more than 30 airlines.

Mr O'Leary said the strategy was a sensible one for Ireland.

"The world has changed dramatically over the past two years, as high oil prices and deep recession have caused a flood of airline bankruptcies, consolidations and capacity cutbacks. Aer Lingus, as a small, stand alone, regional airline has been marginalised and bypassed as most other EU flag carriers consolidate," he said.

“Ryanair believes that Aer Lingus needs to find a strong airline partner to secure its future.”