Ryanair £1bn Aer Lingus bid

5 October 2006

Low-cost airline Ryanair has made an audacious £1bn offer worth £1bn for arch rival Aer Lingus, just days after the Irish flag carrier's flotation.

In an extraordinary move, Ryanair chief executive Michael O'Leary said the bid represented a 'unique opportunity' to form a strong united airline for Ireland with more than 50m passengers annually.

Ryanair has already acquired a 16% stake in Aer Lingus - which was listed on the stock market last week - and will make an offer for the rest in a move valuing the carrier at €1.48bn euros (£1bn).

It is yet to be seen whether the controversial O'Leary is serious about the offer or if it is just a huge publicity stunt to upset his bitter rival. Aer Lingus has been on the receiving end of his many barbed comments and he has consistently mocked its business model and has vowed never to use Heathrow airport.

The offer would value Aer Lingus' shares at €2.80 each, a premium of 27% on the airline's float price and a 12% gain on yesterday's closing price. The company's shares shot up in morning trading to be valued at €2.81.

O'Leary said he would retain the Aer Lingus brand and Heathrow slots if he gained control of the airline and cut loss-making short-haul routes. However, he said he would concentrate on upgrading the carrier's long-haul fleet and product.

The two carriers would continue to compete on the 17 routes they both cover. O'Leary added that Aer Lingus would benefit from Ryanair's superior purchasing power and would be able to utilise new aircraft that are on the low-cost airline's order books.

Aer Lingus overhauled its operation in the wake of September 11. Under the leadership of Willie Walsh - now running British Airways - it slashed fares on the London to Dublin route to compete with Ryanair and ditched its business class cabin on short-haul routes.

The change transformed the airline from one that was haemorrhaging cash to a profitable concern within the space of two years.

The Irish Government still owns around 30% of Aer Lingus following its listing on the London and Dublin stock markets on September 27. The flotation followed a decision by the Irish government to sell more than 50% of its 85.1% stake. Workers retained a 15% stake.

If the merger proceeds, it would be the largest in the European airline market since Air France and KLM linked up in 2004 and would create a dominant Irish airline.

O'Leary said it would build an airline capable of taking on the big European joint-venture carrier alliances such as Lufthansa and SAS, which has 75m passengers, Air France and KLM, which has 70m passengers, and British Airways, which with its Iberian Airlines partner carries 63m passengers. It would also bring Ryanair crucial take-off and landing slots at Heathrow where Aer Lingus is the fourth-largest airline after BA, bmi and Lufthansa.

O'Leary said: 'We believe the price of €2.80 to be an excellent offer. If accepted the Irish Government will realise over €500m from the sale of their Aer Lingus shares, and the employees will realise over €220m which equates to an average of over €60,000 per employee.'

Irish finance minister Brian Cowen made it clear last weekend that his government's decision to retain a blocking stake was to prevent a foreign takeover of the airline. Few, if any, believed O'Leary would chance his arm at Aer Lingus so soon.

Source:- Thisismoney.co

Ryanair's hostile £1bn takeover bid for Irish rival Aer Lingus is 'bound to be blocked' on competition grounds, a Brussels competition insider has told Financial Mail, the sister newspaper of This is Money.

He said Ryanair's argument that it and Aer Lingus overlap on only 17 airport routes would not impress the EC authorities.

Instead, he claimed the EC would be far more concerned that between them, both airlines operated 75% of all seats between Dublin and London.

Also, the EC would be unhappy that new entrants to the market in Ireland would have no chance of competing against a company in such a dominant position.

The Irish government, which owns 28.3% of Aer Lingus, would also insist that its voice be heard when the EC competition authorities made their decision. The source said: 'It would be unprecedented for the competition authorities to allow such a bid to go through when a national government was so concerned about the creation of a monopoly.'

Meanwhile, Martin Cullen, the Irish transport minister, said his government had deliberately taken a blocking stake to protect the state's strategic interests.

Source:- This is Money