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Ryanair (LSE:RYA) has placed an offer to acquire rival airline Aer Lingus (LSE:AERL) for the third time with the hope that the European Commission will finally approve the bid in light of the trend of consolidating flag carriers across Europe.
Ryanair’s offer, released hours after trading closed in London on Tuesday, 19th June 2012, puts a premium of 38.3% over Aer Lingus shares’ last closing price of €0.94, to €1.30, valuing the bid at €694 million.
“Ryanair believes that as the air transport market in Europe inexorably consolidates into five large airlines/groups…the long term future of Aer Lingus, its brand and its growth prospects can best be secured within one strong Irish airline group,” Ryanair’s rationale behind the offer stated.
“Ryanair also believes that circumstances have changed materially since its first unsuccessful bid for Aer Lingus in late 2006 and that there are compelling reasons why Ryanair’s new all Cash Offer should be accepted by a majority of Aer Lingus shareholders, and should also be approved by the EU competition authorities.”
Unsolicited Offer
Responding to the announcement made by Ryanair, Aer Lingus made a short statement regarding the “unsolicited offer” made by its competitor by urging its shareholders to “take no action” in response to the offer.
“Aer Lingus will make a statement in due course,” Aer Lingus’ statement read.
Ryanair, which already owns 29.82% of Aer Lingus, first offered to buy the company in 2006 but was disapproved by the European Commission on grounds of destroying competition.
Last week, UK’s Office of Fair Trade referred the “competition concerns” to the UK Competition Commission, welcomed by Aer Lingus’ Chief Executive Christoph Mueller, who hopes the investigation will result in Ryanair “being ordered to dispose of its shareholding”.
However, Ryanair argued that its offer to takeover Aer Lingus is well along the trend of consolidation amongst Europe’s national flag carriers, including Air France, which owns KLM and holds 25% interest in Alitalia, and British Airways, which merged with Spain’s Iberia to form IAG that also recently bought British Midland – all approved by the European Commission.
Ryanair, further stated it is capable of reaching over 50% acceptances, with or without the acceptance of the Irish Government, which holds 25% stake in Aer Lingus and which is also compelled to dispose its state assets in accordance with the terms of its bailout.
“The government would be concerned obviously in terms of competition, in terms of consumer facilities, in terms of price and access to the country,” Ireland’s Prime Minister Enda Kenny told the Irish Parliament, speaking about Ryanair’s offer.
“If this Offer is successful, Ryanair intends that Aer Lingus will be put on a growth trajectory which will allow Aer Lingus to provide more competition and consumer choice at a number of Europe’s primary airports where currently Aer Lingus flies but where Ryanair does not wish to operate,” Ryanair declared.
CEO Comments
Excerpts of the statement of Ryanair’s Chief Executive, Michael O’Leary, speaking about this latest development, noted:
“This Offer represents a significant opportunity to combine Aer Lingus with Ryanair, to form one strong Irish airline group capable of competing with Europe’s other major airline groups…This Offer is, we believe, the best way for Aer Lingus to continue to be owned, controlled and managed from Ireland for the benefit of Irish citizens and visitors.”
Company Spotlight
Ryanair is one of the largest airlines in Europe with more than 1,500 flights a day from 51 locations to 168 destinations in 28 countries, through a fleet of over 290 Boeing aircraft.
The company became public in 1998, trading on the London Stock Exchange.
Share price of Ryanair gained a mere €0.04 to €4.02 at the close of trading in London, which analysts took that the bid may not be approved.
In contrast, Aer Lingus shares closed at €1.10, up 18.2%.
