Aer Lingus rejects Ryanair’s bid to buy the remaining stock

Aer Lingus, the flag carrier of Ireland, has rejected a bid worth 524 million euros ($663 million) from Ryanair, another Irish airline, to buy the rest of the stock in the airline, saying that Ryanair’s second offer in two years is too low.

Ryanair, which already holds 29.82% of Aer Lingus, bid 1.40 euros for each share, which is half the price offered in 2006.

Aer Lingus said in a statement: “Antitrust questions that scuttled the earlier transaction remain in effect, and Aer Lingus has strongly advised shareholders not to respond to the bid. 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.”

With the second bid, Michael O’Leary, CEO of Ryanair, has revived his biggest-ever takeover effort even as airlines across Europe are struggling with declining demand amid a global recession.

Aviation regulators of the European Union (EU) had blocked Ryanair’s first attempt to buy Aer Lingus because of concern that combining the two airlines, both based in Dublin, Ireland, would lead to a monopoly on 35 routes.

Aer Lingus, based at Dublin Airport, operates over 40 services to Europe, Africa and North America. The airline is 29.82% owned by Ryanair and 25.1% owned by the Irish government. Aer Lingus left the Oneworld airline alliance in 2007, but has extensive codeshares with members of Oneworld and SkyTeam alliances.

Ryanair, headquartered in Dublin, has its biggest operational base at London’s Stansted Airport. Ryanair, which is Europe’s largest low-cost carrier, has been characterised by rapid expansion, a result of the deregulation of the airline industry in Europe in 1997. It is also the third largest airline in Europe in terms of passenger numbers.

In a press release, Ryanair, the biggest investor in Aer Lingus, said: “Ryanair plans to maintain the companies as two brands. The latest offer is 28% higher than the average closing price for Aer Lingus in the 30 days through November 28, 2008, valuing the company at 748 million euros. That compares with a 1.48 billion-euro bid price two years ago.”

Michael O’Leary, CEO of Ryanair, told a news conference in Dublin, Ireland, following Aer Lingus’ announcement of rejection: “The management of Aer Lingus has presided over a share price that has collapsed, and the board normally comes out with a rejection of a hostile bid. The problem for the board is that they don’t have any other plan for Aer Lingus.”

The Irish government is Aer Lingus’ second-biggest shareholder, with a stake of 25.1%, and the airline’s employees own 14.2%. Aer Lingus was state-owned until its initial public offering in September 2006, when Ryanair started accumulating shares before making a hostile bid in October 2006 at 2.80 euros a share. Ryanair halted the offer in December 2006 after the European Union started an in-depth investigation into the matter.

Noel Dempsey, Transport Minister of Ireland, was quoted as saying in an interview: “The government of Ireland is keeping its shares in Aer Lingus for strategic reasons, including retaining the carrier’s takeoff and landing rights at London’s Heathrow Airport, Europe’s busiest airport, as well as to prevent hostile bids. We should have competition in the industry, and any decision by the state as an Aer Lingus investor will be taken in the context of overall aviation policy.”