Aer Lingus welcomes EU probe of Ryanair’s bid

Ryanair Ltd.

Ryanair Ltd.

Aer Lingus is satisfied with the investigation started by European competition regulators regarding into Ryanair‘s €700m (£556m) hostile takeover bid for its fellow Irish airline. The probe was initialized on concerns that the takeover of Aer Lingus might eliminate competition on several routes in Europe.

Ryanair attempts to takeover of Aer Lingus

Ryanair attempts for the third time to acquire Aer Lingus, the Irish flag carrier. Yesterday the European Commission decided to start an investigation concerning the takeover. In 2007 European Commission decided to block Ryanair’s first attempt to takeover, also on competition grounds. The second attempt of acquirement, which took place in 2008, failed because Ryanair did not receive sufficient shareholders’ support.

The European Commission informed on Wednesday that it had decided to continue the investigation after the initial probe of the €694 million ($872 million) bid showed competition concerns. The initial inquiry indicated that the Ryanair’s third attempt of takeover of Aer Lingus might harm the free competition in the European market.

In 2007, when the Ryanair’s first attempt of takeover of Aer Lingus took place, the European Commission prohibited this bid on ground of competition concerns as well. According to lawyers, the Ryanair’s latest offer would also have problems gaining the approval of the European institution.

As it was stated by a spokesman for Aer Lingus, “The number of routes into and out of Ireland on which Aer Lingus and Ryanair compete has sharply increased since 2007. The reasons for prohibition are therefore even stronger than before.” And European Commission holds it opinion, which is also included in the preliminary inquiry that the proposed takeover of Aer Lingus would lead to the limited competition. The commission has informed that the decision whether block the takeover or not will be made before 14th of January.

Ryanair, a Dublin-based carrier, in June made an offer of €1.30 per Aer Lingus share, thereby valuing the company’s equity at €694 million. Because of the European Commission’s investigation, the bid is now on hold. However Ryanair’s’ officials has assured that if the offered is cleared by the European regulator the company will rebid for the Irish flag carrier. Ryanair has 29.82 percent shares in Aer Lingus. Among shareholders in the company are, inter alia, the Irish government, with a 25 percent stake, and Middle East carrier Etihad Airways, with 3 percent. Moreover the government’s stake is for sale as Dublin struggles to stabilize the Irish economy and finances.

The offer of €1.30 per Aer Lingus share is not acceptable, according to the Aer Lingus board. The board has informed investors that the current bid undervalued the company. Because of that Ryanair cannot expect the warm shareholders’ support.

Ryanair attempts to expand

Ryanair, which is the Europe’s largest discount airline by passenger number, tries to expand its business as the European airline sector struggles because of high fuel prices and tough economic conditions as well. Those problems led to the bankruptcy of several small regional carriers as well as to cost-cutting by other airlines, including Air France and Deutsche Lufthansa  as well.

Ryanair wants to takeover of Aer Lingus to operate two competing airlines within one group. According to the carrier’s officials, Ryanair wants to use Irish flag carrier also to compete with European airlines at large airports, where it does not have bases. But as it was stated, Ryanair would also focus on reducing unit costs and increasing Aer Lingus’ traffic figures as well as expanding Irish carrier’s transatlantic operations.

Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

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