Aer Lingus rejects ‘not credible’ Ryanair
The board of Aer Lingus has rejected Ryanair’s takeover approach as “not credible” given the regulatory hurdles it faces.
The Irish flag-carrier told shareholders on Wednesday that its low-cost rival’s €1.30 a share offer – which was set out in detail on Tuesday – stood a good chance of being blocked by the European Commission, according to legal advice received by Aer Lingus’s board.
Regulatory approval is seen as the biggest challenge to a deal, since the European Commission rejected an earlier attempt, six years ago, by the low-cost carrier to buy its national rival. Another bid launched in late 2008 was dropped before reaching European regulators.
“The reasons for prohibition are now even stronger than before: the number of routes that Ryanair would monopolise has sharply increased,” said Aer Lingus on Wednesday.
The board also urged shareholders to ignore the offer on valuation grounds, pointing out that the €694m all-cash bid represents a 17 per cent discount to the company’s net asset value per share, and that “the gross cash on Aer Lingus’s balance sheet more than pays for Ryanair’s offer”.
This “represents a significant discount to the intrinsic value of the business”, the company said.
Aer Lingus shares have fallen more than 50 per cent since flotation in 2006. But the company argues it has executed a turnround in recent years as evidenced by a €130m improvement in operating profits since 2009.
Still, a number of questions continue to surround the group, including how it will help fill an approximately €700m black hole in an employee pensions scheme and how it can fare as an independent carrier amid increasing consolidation in the aviation sector. Etihad, the Middle Eastern airline, took a 3 per cent stake in the group earlier this year, and the two companies are working on setting up a code-sharing agreement.
The government meanwhile is looking to sell its 25 per cent stake in Aer Lingus as part of Dubliln’s deal with the EU, European Central Bank and International Monetary Fund to pay down state debt.
If Dublin were to back this offer, it would seal a deal that requires 50 per cent shareholder approval, since Ryanair already holds 29 per cent of the shares. That stake, however, is at the centre of a separate investigation by the UK’s Competition Commission over whether the holding is anti-competitive.
Leo Varadkar, Irish transport minister, on Tuesday announced four factors he will consider when evaluating the deal: what is best for passengers in terms of connectivity and fares, the price being offered, the impact on the Irish economy and “the views of the regulatory authorities in relation to any bid”.
Aer Lingus said on Wednesday that legal advice suggested the UK regulator would find in its favour regarding Ryanair’s “anti-competitive” stake. But the process has been delayed by Ryanair appealing over the Competition Commission’s right to pursue its investigation while European regulators consider the takeover offer.
Aer Lingus is set to give a more detailed defence document in the next two weeks.
James Hollins, an analyst with Investec, said on Wednesday that regulators’ dim view of Ryanair’s dealings with Aer Lingus up to now “seems compelling evidence of a deal that will not complete and we, therefore, continue to evaluate Ryanair as a standalone business”.
Aer Lingus shares were flat at €1.08 in early trading, while Ryanair’s dipped slightly.