Aer Lingus has rejected a bid by Ryanair. It will be interesting to see how long the unions can fight the economic realities.
AFP - Tuesday, December 2DUBLIN (AFP) - - Irish airline Aer Lingus rejected Monday a 748-million-euro (950-million-dollar) cash takeover offer from Ryanair, Europe's biggest budget airline, saying it was way below its real value.
"The board rejects this new offer and Aer Lingus shareholders are strongly advised to take no action in relation to the offer," the former national carrier's board said in a statement.
"Aer Lingus remains a strong business with significant cash reserves and a robust long-term future. The board believes that the offer significantly undervalues Aer Lingus," it added.
The offer represented a premium of about 25 percent compared with the closing price for Aer Lingus shares on Friday but was only half the 1.48 billion euros that Ryanair offered for its Irish rival in an unsuccessful takeover attempt in October 2006.
Unveiling the new offer, Ryanair chief executive Michael O'Leary said the deal "will form one Irish airline group with the financial strength to compete with Europe's three major airline groups -- Air France, British Airways and Lufthansa.
"The world has changed dramatically over the past two years, as high oil prices and deep recession have caused a flood of airline bankruptcies, consolidations and capacity cutbacks," he added in a statement.
Ryanair, which already owns almost 30 percent of Aer Lingus, offered 1.40 euros per outstanding share and said that following any merger it planned to operate both airlines as separate companies with "distinctive brands."
Ryanair added in the statement: "Over the past two years, the management of Aer Lingus have failed its shareholders, customers and staff. Its shares have fallen from over three euros, to less than one euro recently."
Aer Lingus shares surged on news of the offer, with the bid from an airline renowned for keeping costs to a minimum getting an angry reception from unions.
"For our members and workers in the airline industry it would be a nightmare if Ryanair ran the show," said Teresa Hannick, assistant organiser of the Aer Lingus branch of the trade union SIPTU.
Aer Lingus posted an operating loss of 22.3 million euros for the first six months of 2008, compared with an operating profit of 2.6 million euros a year earlier.
In October, it announced plans to save 74 million euros a year by cutting costs, including making savings on staff.
Ryanair's 2006 bid was strongly opposed by major Aer Lingus shareholders, including the Irish government, company employees, pilots and their pension fund. It was ultimately blocked by EU anti-competition regulators.
Analysts however gave the new bid a better chance of success.
"We see this bid as having a better chance of approval given the flow of mergers and approvals of state aid within the sector, as well as recent combinations of businesses in financial services that would never have passed competition authority scrutiny only three months ago," said Royal Bank of Scotland analyst Andrew Lobbenberg.
Jim Power, chief economist of the Friends First financial services group, told RTE radio: "I think Ryanair is taking the view that the environment has changed dramatically across Europe over the last six months and the EU Commission might now take a different view."
In London trade, shares in Aer Lingus ended the day 13.6 percent higher at 1.27 euros. Ryanair lost 4.8 percent at 2.79 euros, roughly in line with a much weaker overall market.