LONDON (Alliance News) - Irish budget carrier Ryanair Holdings PLC on Friday said its board has voted unanimously to accept International Consolidated Airlines Group's offer for its stake in Aer Lingus Group PLC, removing the final barrier in the way of IAG's takeover bid and paving the way for the protracted transaction to go through.
FTSE 100-listed IAG, the owner of British Airways and Iberia, made a EUR1.4 billion takeover offer for Aer Lingus late in 2014 and has already secured the Irish government's support for the bid, along with that of the Irish flag carrier's board.
Ryanair said its board voted unanimously to accept the bid for its 29.8% stake in Aer Lingus, saying it thinks the takeover "maximises Ryanair shareholder value". In line with the decision, Ryanair will vote in favour of the motion at the upcoming Aer Lingus extraordinary general meeting to accept IAG's offer, subject to it securing European regulatory approval.
"We believe the IAG offer for Aer Lingus is a reasonable one in the current market, and we plan to accept it, in the best interests of Ryanair shareholders. The price means that Ryanair will make a small profit on its investment in Aer Lingus over the past nine years," said Ryanair Chief Executive Michael O'Leary.
Investor responded positively to the news, bidding up the shares of all three companies. IAG shares were up 2.7% to 528.50 pence in early trade on Friday, one of the best performers in the FTSE 100. Ryanair shares were up 2.1% to EUR12.36, while Aer Lingus shares were up 1.3% to EUR2.46.
Winning the support of Ryanair's board was the key hurdle in the way of IAG's attempt to acquire Aer Lingus, with the Irish government, which holds a 25% stake in Aer Lingus, having given its backing to the bid at the end of May.
The Irish government's support was given after IAG confirmed Aer Lingus would keep its existing slots at Heathrow airport and will operate its current daily winter and summer scheduled flights between Heathrow and Dublin, Cork and Shannon for at least seven years after the acquisition. The Aer Lingus brand also will be maintained.
Aer Lingus's Heathrow slots and its brand were at the centre of Irish government concerns over IAG's deal. Speaking in March in an interview with Ireland's Newstalk Radio, Irish Transport Minister Pascal Donoghue said that while its talks with IAG over the Aer Lingus deal had been "positive", it was seeking more assurances on measures to be taken to expand employment and protect Aer Lingus' brand identity and routes.
Donoghue said the Irish government at the time still held concerns about jobs and connectivity, echoing earlier statements made by Deputy Prime Minister Joan Burton, who also expected IAG to make further concessions to protect Aer Lingus' routes.
Aer Lingus itself has consistently backed the IAG takeover offer. Publishing its first-quarter results at the end of April, Aer Lingus said: "The board and management team of Aer Lingus strongly remain of the view that a combination of Aer Lingus and IAG has a compelling strategic rationale and will deliver significant benefits to all stakeholders in Aer Lingus."
"This is a compelling transaction for Aer Lingus, its shareholders, its employees, its customers and for Ireland. Shareholders will realise an attractive return through the premium that the IAG offer provides over the level of our share price immediately prior to the announcement of IAG?s offer," Colm Barrington, Aer Lingus' chairman, added in May.
Under the terms of the deal, IAG, will pay EUR2.55 per share in cash for Aer Lingus, split between a EUR2.50 cash payment and a EUR0.05 cash dividend per Aer Lingus share. The offer is at a premium of 40% to Aer Lingus' closing price of EUR1.82 per share on December 17, the last day of dealing prior to the initial offer having been made. It is also at a 77% premium to the volume-weighted average price of Aer Lingus shares in the six months prior to the offer being made.
Prior to the confirmation on Friday, all indications had pointed to Ryanair accepting the takeover offer, based on its opposition to the ruling made by the Competition and Markets Authority, the UK's antitrust regulator, that it must sell down its stake in Aer Lingus from 29.8% to 5%. Ryanair's initial request for the ruling to be overturned was made on the basis that IAG's bid for Aer Lingus undermines the CMA's view that Ryanair's substantial holding in Aer Lingus would deter any other companies from bidding for the carrier.
In June, the CMA handed down its final order requiring Ryanair to sell its Aer Lingus stake, though Ryanair said it would appeal the "ridiculous" ruling to the Competition Appeal Tribunal, and will also seek permission to appeal the "unsustainable" 2013 report that contained the CMA's initial arguments to the UK Supreme Court.
There had been concerns that Ryanair's decision to pursue an appeal of the ruling could severely delay IAG's takeover of Aer Lingus should the Supreme Court decide to hear the appeal, but Ryanair's announcement on Friday erased those worries.
The CMA, however, undermined Ryanair's argument that that IAG's bid for Aer Lingus makes the sell-down ruling irrelevant, noting that IAG wants to acquire Aer Lingus outright and can only force minority shareholders to sell should it secure more than a 75% stake in the company, something which would be impossible if Ryanair held on to its stake. Ryanair had argued that to take control of Aer Lingus, IAG would only need 50.1% of the shares and said it could not block it from doing that.
"It is clear that the timing of IAG's bid has been influenced by the prospect of Ryanair being forced to sell the majority of its shareholding. IAG has said that it would not be interested in acquiring any airline with a significant minority investor. The conditional nature of IAG's bid is consistent with this and our original assessment that Ryanair's presence was likely to deter other airlines from entering into, pursuing or concluding combinations with Aer Lingus," said Simon Polito, chair of the CMA's Ryanair/Aer Lingus inquiry group, when handing down the final ruling.
Ryanair itself had attempted to acquire Aer Lingus on a few occasions, most recently two years ago, when the takeover was blocked by the European Commission and rejected by the Irish government.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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