The board of Irish airline Aer Lingus has urged shareholders to ignore the latest takeover bid mounted by low-cost rival Ryanair. Under Irish law, the board of the former government-owned flag carrier had until the end of July to respond to Ryanair’s July 17 bid to buy remaining stock at €1.30 ($1.60) per share, valuing the company at €694 million ($833 million). Despite the fact that the price offered represents a 50-percent premium on the average Aer Lingus share price over the past six months, directors dismissed the bid as “not credible.”
This is Ryanair’s third attempt to acquire Aer Lingus. The European Commission blocked its first bid in 2006 over antitrust concerns, and Ryanair abandoned a second attempt in 2008 after it became clear that antitrust authorities would intervene again.
Further complicating matters, on July 20 the UK government’s Competition Appeal Tribunal began to consider whether Ryanair’s existing 29-percent stake in Aer Lingus already gives it undue market dominance. The tribunal expects to rule on that case by year-end. The Aer Lingus board claims to have received legal advice that the European authorities will also reject the latest hostile takeover bid. However, Ryanair, which carries a reputation for aggressive cost-cutting, insists that it would boost annual passenger throughput at Aer Lingus from 9.5 million to 14 million, creating new jobs for pilots, cabin crew and maintenance staff. Possibly anticipating concerns that it would try to downsize its rival to dilute competition, Ryanair has said that the two airlines would operate separately under a joint holding company. It has suggested that Aer Lingus would focus on “high frequency, mid-frills, short-haul services to primary airports and its transatlantic operations,” while Ryanair would continue its pursuit of budget passengers on point-to-point services.
Ultimately, the purely financial case for or against the Ryanair bid rests largely in the hands of the Irish government. It still holds a 25-percent stake in Aer Lingus and faces pressure to liquidate its holding to meet separate commitments to the European Commission to reduce the country’s public debt.