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Aer Lingus: Ryanair Offer Undervalues Aer Lingus

LONDON -- Aer Lingus Group PLC (EIL1.DB) Wednesday rejected yet another takeover bid from low-cost airline Ryanair Holdings PLC (RYA.DB) saying it undervalued the company, the latest shot in a protracted fight for control of the Irish carrier. Late Tuesday, Ryanair announced a EUR694 million bid to buy Aer Lingus in an apparent effort to tighten its grip over the Irish airline market. This is the third time that Ryanair has tried to snap up Aer Lingus in a long running battle marred by skirmishes with competition regulators across the continent. Rebuffing the offer, Aer Lingus pointed to an ongoing investigation by the U.K's competition watchdog into whether Ryanair was leveraging its 30% stake in Aer Lingus to weaken its main competitor in Ireland. The watchdog is expected to publish a ruling in November this year and has the power to force Ryanair to sell its stake in Aer Lingus. "Consequently there is significant uncertainty that any offer from Ryanair, if made, would be capable of completion," Aer Lingus said in a statement. Aer Lingus' board also touted the company's improved financial performance. "The offer, even if it is capable of completion, undervalues Aer Lingus," the board added. Ryanair bought a minority stake in Aer Lingus in 2006 as part of a failed attempt to take over the carrier. Aer Lingus and the Irish government, which owns a 25% stake in Aer Lingus, rejected the bid. European regulators also ruled that it would give Ryanair a dominant share of the Irish short-haul market. Ryanair redoubled its efforts shortly after, with a bid of EUR748 million, only to be rejected again. In a statement on Tuesday Ryanair said that "circumstances have changed materially" since that failed bid, and that there are reasons why its new offer should be accepted. Ryanair Chief Executive Michael O'Leary said the offer "represents a significant opportunity to combine Aer Lingus with Ryanair, to form one strong Irish airline capable of competing with Europe's other major airlines. The offer is "the best way for Aer Lingus to continue to be owned, controlled and managed from Ireland for the benefit of Irish citizens and visitors," O'Leary said. Irish Taoiseach Enda Kenny raised issues about the how the Ryanair deal would affect competition in the Irish market, according to a government spokesman. The European Union's antitrust regulator said it would examine the new bid once the company files a notification, a spokesman said Wednesday. Analysts say that a deal would offer Ryanair significant synergies in Ireland."The bid would enable Ryanair to take out their biggest Irish competitor," says Neil Glynn an analyst at Credit Suisse. "This should be helpful in terms of pricing and their bargaining power with Dublin airport." Some see it as a way for Ryanair to test the market for long-haul flights, something that Mr. O'Leary has mentioned in the past. "Assuming that there is an agenda beyond revenge on this one, the only way it makes sense is if O'Leary wants to do something else, like say a long-haul operation," says Andrew Charlton at Aviation Advocacy. Experts, however, say that Mr. O'Leary will only venture into the long-haul business once he can secure wide body aircraft at cheap enough rates. On Wednesday, people close to Aer Lingus said they suspect that Ryanair's latest takeover approach is an effort to drum up interest, and the price, of its stake in the carrier ahead of a potential sale. A spokesman for Aer Lingus declined to comment. A spokesman for Ryanair declined to comment beyond the company's statement on Tuesday. Meanwhile, the cash-strapped Irish government is weighing what to do with its 25% stake in Aer Lingus. Gulf carrier Etihad has said that it would be interested in the stake. Teresa Hannick, an Aer Lingus union representative, said that workers had been assured by the Irish government that there would be "no firesale." Prospects of a sale have been previously dampened by a dispute over Aer Lingus' share of an estimated EUR600 million pension deficit divided among several employers including the airline, the Dublin Airport Authority, and a maintenance repair company. A spokesman for Aer Lingus said the company is not directly liable for the pension deficit. Write to Max Colchester at max.colchester@wsj.com

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