Aer Lingus has rejected the latest takeover bid from Ryanair. This was the third time that the Irish budget airline put an offer forward, only for the flag carrier to say the bid fundamentally undervalues its business. The first offer was made and turned down almost six years ago.
On Wednesday, Aer Lingus claimed that concerns raised about competition by Ryanair’s interest have grown. The budget airline is the biggest shareholder of the flag carrier, holding a 29.82% stake. It’s ambitions to buy the rest of the company have been halted twice in the past – 1) an objection from the European Commission against the merger; and 2) an investigation by the Competition Commission into the existing holding Ryanair has in its rival. In the 12-months to March 31, 2012, Ryanair carried over 75 million passengers. Together with Aer Lingus, the airlines accounts for most services operated from Dublin Airport.
Ryanair’s most recent offer values Aer Lingus at €1.30 per share (or £1.02 per share). This is much less than the €2.80 per share offered in 2006, during the flag airline’s flotation. This was before the aviation industry was going through a long period of instability due to weak passenger demand after the credit crunch and high fuel costs. The budget carrier returned to Aer Lingus with another offer of €1.40 per share in 2008, but this was rejected since the bid was 31% below the airline’s €1.87 gross cash per share.
Aer Lingus has urged its shareholders to reject the bid, reminding them that the 2006 offer from the carrier was prohibited by the European Commission on ground of competition. The airline said that the board believes the reasons for prohibition are even stronger now than before due to an increase in the number of routes the budget carrier would monopolise. It also noted that the board has been legally advised that the European Commission is likely to halt the Ryanair bid. The carrier added that, therefore, this isn’t a bid that’s capable of being completed.
Aer Lingus gave this response after the offer document from Ryanair was published on Tuesday. The budget airline claimed in the document that it would add jobs at the flag carrier and raise the company’s passenger number from 9.5 million per year to 14 million. The airline said the ambitious passenger growth targets would have to be met with more engineers, pilots and cabin crew.
However, it suggested changes would be made to the terms and conditions in staff contracts. This is because a reduction to fare prices at Aer Lingus would be combined with improved productivity among its staff in order to keep costs down and maintain profit margins. One of the key factors in the low-cost carrier’s business is low labour costs, as the savings are used to lower ticket prices.
The Irish government is the second largest shareholder of Aer Lingus, at 25%. Last month, it said it would consider the latest bid from Ryanair, following more fierce rejections in the past. The third largest stake is 4%, which is held by Irish entrepreneur Denis O’Brien. He said last month that the new offer from Ryanair undervalued Aer Lingus and could be a trick to start talks with Etihad Airways, which has a 3% hold in the carrier.
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