Midnight Mike
2006-10-05, 06:59 AM
Ryanair makes $1.9 bln bid for Aer Lingus
Ryanair (RYA.I), Europe's biggest budget airline, launched a surprise bid for Aer Lingus (AERL.I) on Thursday, valuing the former Irish state airline at 1.48 billion euros ($1.9 billion) but met an immediate refusal by the Irish government to sell its remaining stake.
Ryanair said it had already bought 16 percent of Aer Lingus and would offer 2.80 euros a share in cash for the rest of its compatriot, which was only privatized this week with a share market flotation at 2.20 euros a share. The shares closed on Wednesday at 2.51 euros.
In a characteristic move Ryanair Chief Executive Michael O'Leary took the market by surprise with its bid for a rival it has fiercely criticized in the past.
"This offer represents a unique opportunity to form one strong airline group for Ireland and for European consumers. We will expand, enhance and upgrade the Aer Lingus operations," O'Leary said in a statement.
A deal would mark the first time a European budget airline has secured transatlantic routes but Ryanair said the two airlines would continue to be operated separately.
The Irish government, which still owns around a third of Aer Lingus, said it was committed to competition in aviation markets and would not sell its shares.
But Ryanair said it was happy for the government to retain its stake.
Aer Lingus, which made its stock market debut on Monday, was not immediately available to comment.
At 0956 GMT Aer Lingus shares were up 11.6 percent at 2.80 euros. Ryanair was down 2.4 percent at 8.50 euros.
"This offer -- if successful -- means both companies will continue to operate separately and compete vigorously in the small number of routes on which we both operate -- currently around 17 of the approximately 500 routes operated by the two airlines," O'Leary said.
COMPETING IN EUROPE
Ryanair's Deputy Chief Executive Michael Cawley later told Reuters he did not expect problems from competition authorities.
Exane BNP analyst Nick van den Brul said his first impression was also that a deal could get cleared.
"There may be some issues, particularly at Dublin airport, and they may have to sacrifice some routes. There would almost certainly be a competition investigation by the EU but it doesn't look insurmountable," he said.
Van den Brul said investors would want to be reassured the deal would not make Ryanair less profitable given Aer Lingus's lower margins and added some might be disappointed if a deal dashed hopes of Ryanair returning cash to shareholders.
Andrew Fitchie, analyst at Collins Stewart, said strategically the logic was "infallible" for Ryanair and would create "a fantastic Irish champion in terms of the combined entity."
Ryanair said the takeover would create an airline with about 50 million passengers annually, capable of competing with other large European airline alliances and groupings including Lufthansa-SAS-Swiss (LHAG.DE) (SAS.ST) with 75 million and Air France-KLM (AIRF.PA) with 70 million.
It said its offer for Aer Lingus, which has remodeled itself as a low cost carrier, would net around 500 million euros for the Irish government and over 220 million euros for Aer Lingus staff.
It plans to reduce Aer Lingus's average short haul fare by 2.5 percent a year for a minimum period of four years and cut Aer Lingus's fuel surcharges as the price of oil falls.
It also said it will retain the Aer Lingus brand, its highly coveted runway slots at London's Heathrow airport and all profitable routes currently operated by Aer Lingus.
Ryanair (RYA.I), Europe's biggest budget airline, launched a surprise bid for Aer Lingus (AERL.I) on Thursday, valuing the former Irish state airline at 1.48 billion euros ($1.9 billion) but met an immediate refusal by the Irish government to sell its remaining stake.
Ryanair said it had already bought 16 percent of Aer Lingus and would offer 2.80 euros a share in cash for the rest of its compatriot, which was only privatized this week with a share market flotation at 2.20 euros a share. The shares closed on Wednesday at 2.51 euros.
In a characteristic move Ryanair Chief Executive Michael O'Leary took the market by surprise with its bid for a rival it has fiercely criticized in the past.
"This offer represents a unique opportunity to form one strong airline group for Ireland and for European consumers. We will expand, enhance and upgrade the Aer Lingus operations," O'Leary said in a statement.
A deal would mark the first time a European budget airline has secured transatlantic routes but Ryanair said the two airlines would continue to be operated separately.
The Irish government, which still owns around a third of Aer Lingus, said it was committed to competition in aviation markets and would not sell its shares.
But Ryanair said it was happy for the government to retain its stake.
Aer Lingus, which made its stock market debut on Monday, was not immediately available to comment.
At 0956 GMT Aer Lingus shares were up 11.6 percent at 2.80 euros. Ryanair was down 2.4 percent at 8.50 euros.
"This offer -- if successful -- means both companies will continue to operate separately and compete vigorously in the small number of routes on which we both operate -- currently around 17 of the approximately 500 routes operated by the two airlines," O'Leary said.
COMPETING IN EUROPE
Ryanair's Deputy Chief Executive Michael Cawley later told Reuters he did not expect problems from competition authorities.
Exane BNP analyst Nick van den Brul said his first impression was also that a deal could get cleared.
"There may be some issues, particularly at Dublin airport, and they may have to sacrifice some routes. There would almost certainly be a competition investigation by the EU but it doesn't look insurmountable," he said.
Van den Brul said investors would want to be reassured the deal would not make Ryanair less profitable given Aer Lingus's lower margins and added some might be disappointed if a deal dashed hopes of Ryanair returning cash to shareholders.
Andrew Fitchie, analyst at Collins Stewart, said strategically the logic was "infallible" for Ryanair and would create "a fantastic Irish champion in terms of the combined entity."
Ryanair said the takeover would create an airline with about 50 million passengers annually, capable of competing with other large European airline alliances and groupings including Lufthansa-SAS-Swiss (LHAG.DE) (SAS.ST) with 75 million and Air France-KLM (AIRF.PA) with 70 million.
It said its offer for Aer Lingus, which has remodeled itself as a low cost carrier, would net around 500 million euros for the Irish government and over 220 million euros for Aer Lingus staff.
It plans to reduce Aer Lingus's average short haul fare by 2.5 percent a year for a minimum period of four years and cut Aer Lingus's fuel surcharges as the price of oil falls.
It also said it will retain the Aer Lingus brand, its highly coveted runway slots at London's Heathrow airport and all profitable routes currently operated by Aer Lingus.