Ryanair ‘kingmaker’ for Aer Lingus

Published: Wednesday 27th May 2015 by The News Editor

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The takeover of Aer Lingus by British Airways owner International Airlines Group has been left hinging on the next move by Ryanair – now “kingmaker” in the deal due to its near-30% stake in the Irish flag-carrier.

But the low-cost airline, headed by flamboyant boss Michael O’Leary, was keeping its cards close to its chest, saying it had yet to receive an offer despite the announcement yesterday that terms had been agreed by the Aer Lingus board.

Ryanair could choose to “play hard ball” and force IAG to return with a higher bid for all shareholders, according to one broker.

The deal moved a step closer after the Irish government, which owns a 25% stake in Aer Lingus, gave the green light to a 1.4 billion euro (£1.03 billion) bid.

But the offer is conditional on acceptances by at least 90% of shareholders. Ryanair owns 29.8% of Aer Lingus and has consistently said it would consider any offer, should it receive one, on its merits.

IAG said last night that it had reached agreement with the independent directors of the Aer Lingus board on a cash offer to be recommended to shareholders.

It would see them receive 2.55 euros (£1.81) in cash per share, representing a premium of 40% to its closing price prior to the offer period opened last December. Full terms and conditions will be posted to investors within 28 days.

Ryanair said: “Our position has not changed. The board of Ryanair has yet to receive any offer, and will consider any offer on its merits, if and when an offer is made.”

IAG declined to comment on whether there had been any discussions with Ryanair but it was hopeful that the low-cost carrier would accept the offer.

Cantor Fitzgerald analyst Robin Byde said: “Although the company has good access to finance for its large new B737 aircraft orders, the additional cash would no doubt be welcome and may also accelerate planned buy-backs or further special dividends.”

Shares in IAG, which also owns Spain’s Iberia, rose 1%, while Ryanair added 1% and Aer Lingus was up 2%.

The background to the transaction is complicated by a long-running battle fought by Ryanair against UK competition authorities, which have ordered it to cut its stake in Aer Lingus.

Analysts at Jefferies described the low-cost carrier as the “kingmaker”, saying it “may yet prove troublesome”.

Yesterday, Ryanair reported a 66% rise in annual earnings to 867 million euros (£614 million).

The Jefferies analysts said: “Given Ryanair’s own track record… and its current position of strength, we would not be surprised to see Ryanair play hard ball.

“Presumably if Ryanair rejected the offer as too low, the onus would be on IAG to return with a higher bid for all shareholders.”

The Irish government has backed the IAG takeover after receiving “additional information and certain commitments”, Transport Minister Paschal Donohoe said. Legislators in the Dail will now have to vote on the proposals.

IAG said it has agreed to a number of “legally binding” promises on the future of Aer Lingus, including the development of Dublin as a hub for transatlantic routes.

It has also said Aer Lingus will keep existing slots at Heathrow, continue routes between Heathrow and Dublin, Cork and Shannon for the next seven years, as well as retaining its corporate brand.

The Aer Lingus head office will remain in Dublin, under the agreement.

Willie Walsh, the Irish-born chief executive of IAG, claimed Aer Lingus, Ireland and IAG would all benefit from the deal.

“Aer Lingus would maintain control of its brand and operation while gaining strength as part of a profitable and sustainable airline group in an industry that’s consolidating,” he said.

However, unions and opposition parties fear job losses, reduced connectivity in and out of Ireland and less competition if the airline is sold.

Repeated advances from IAG had been previously rejected on the back of such concerns.

Published: Wednesday 27th May 2015 by The News Editor

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