Ryanair Makes Hostile $1.88 Billion Bid for Aer Lingus

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Ryanair Holdings Plc, Europe’s biggest discount airline, made a hostile $1.88 billion bid for Aer Lingus Plc to combine Ireland’s dominant carriers and add routes to America.

Ryanair acquired a 16% stake and offered 2.80 euros a share for the rest of Aer Lingus, 12% more than yesterday’s closing price in Dublin. The Irish government, owner of 28.3% of the carrier, and Aer Lingus rejected the bid, which comes eight days after its initial public offering.

Given the opposition, Ryanair “will have to increase the bribery and pay significantly more,” a Madrid-based analyst for Dresdner Kleinwort with an “add”rating on Ryanair shares, Mike Powell, said.

Chief Executive Officer Michael O’Leary said Ryanair would reduce fares at Aer Lingus and acquire planes at lower cost by combining orders. The enlarged group would have 50 million passengers a year, helping it compete with British Airways Plc and its partner Iberia SA, which have 63 million.

“It makes sense to combine the two Irish airlines so that we can compete with the likes of British Airways, Lufthansa and Air France,”Mr. O’Leary said in an interview. “We can boost Aer Lingus’s growth and profits and produce a better return than putting our spare cash on deposit.”The two carriers will have separate operations and brands, he said.

Shares of Ryanair, founded in 1985 with one 15-seat plane, fell 7 cents, or 0.8%, to 8.63 euros in Dublin.The stock is up 4% this year, giving the company a market value of 6.7 billion euros. Aer Lingus surged 16% to 2.90 euros.

Together, Ryanair and Aer Lingus handle about 70% of the passengers at Dublin airport. The takeover would face scrutiny from Irish and European regulators.Cathal Hanley, a spokesman for the Competition Authority in Dublin, declined to comment.

“The government is fully committed to competition in the aviation market and it will not be selling its shares in Aer Lingus,” Irish Prime Minister Bertie Ahern told lawmakers in Dublin today.”It was always the intention to maintain a significant minority shareholding.”

Aer Lingus’s board unanimously rejected the offer, the company said in a statement.”This approach is unsolicited, wholly opportunistic and significantly undervalues the group’s businesses,” Aer Lingus Chairman John Sharman said in the statement. “The offer would raise significant regulatory issues,” he said.

Ryanair on September 29 raised its full-year profit forecast and ordered an additional 32 Boeing Co.planes.Discount airlines are expanding in Europe, with a 24% share of the market compared with 5% in 2001. Ryanair has introduced a new base at Bremen, Germany, and expansion of the Barcelona-Girona base in Spain in the past two weeks.

“We’re happy to see this offer,” said Colin McLean, managing director of SVM Asset Management, who holds shares in Ryanair and Aer Lingus. The airline “might have to up their offer and there is the possibility of someone else entering” with a rival bid, he said.

Aer Lingus Chief Executive Officer Dermot Mannion has said he plans to use the proceeds of the IPO to double Aer Lingus’s long-haul fleet to 14 jets, expand the 28-plane short-haul fleet by 50% and spend about 2 billion euros adding American and Asian routes.

Ryanair has a strategy of taking market share from national carriers, while defending its Irish market. Unlike Aer Lingus, Ryanair has no long-haul routes.The Ryanair bid would be the largest airline transaction in the past 12 months if successful, according to Bloomberg data.

“It’s hard to see how the Irish competition regulator can permit such a concentration of capacity at Dublin airport,” an analyst at J.P. Morgan with an “overweight” rating on Ryanair stock, Chris Avery, said. “If the regulator objects, it is then hard to see what Ryanair hopes to achieve.”

The combined group would operate on about 500 routes, competing on only 17. Ryanair would combine purchasing with Aer Lingus to drive down fares and costs. The airline had about 2.2 billion euros of cash before buying a stake in the carrier, said Mr. O’Leary.

“We can comfortably fund this from our own resources,” said Mr. O’Leary. “We’re happy to work with the Irish government as a significant minority shareholder if they decide not to sell,” Mr. O’Leary said, adding he didn’t anticipate antitrust or regulatory difficulties.

Mr. O’Leary joined the Dublin-based company in 1988 from accounting firm KPMG LLP. Ryanair for the first time in August 2005 carried more passengers than British Airways.


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