Shawn Pogatchnik, THE ASSOCIATED PRESS

Stumble Upon

del.icio.us

Digg

Facebook

Print

Email

Speak Up

DUBLIN, Ireland - Budget airline Ryanair has launched a new takeover bid for Aer Lingus, seeking to capitalize on labour unrest at its Irish rival amid Ireland's economic difficulties.

Cash-rich Ryanair Holdings PLC said Monday it would pay 1.40 euros per share for 70 per cent of Aer Lingus Group PLC, a 25 per cent premium over Monday's opening stock price. Ryanair initially tried to acquire Aer Lingus two years ago and is the airline's biggest shareholder with a 30 per cent stake.

Monday's bid values Aer Lingus at 748 million euros (US$945 million).

Aer Lingus issued a brief statement urging its shareholders to "take no action" and promising a detailed response soon. Its shares rose 14.3 per cent to 1.28 euros on the Irish Stock Exchange, while Ryanair fell 4.8 per cent.

The Irish government, which retains one-quarter of Aer Lingus and opposed Ryanair's surprise assault in 2006, said it was concerned that a takeover would undermine competition. Together, the two airlines account for about 90 per cent of airline traffic to and from the island country.

Transport Minister Noel Dempsey said the government had retained its stake specifically "to prevent hostile bids." But he did not rule out eventual government acceptance of a Ryanair takeover.

"Aviation policy here is that we should have competition," Dempsey said, adding that the government - currently raising taxes to combat its worst deficit in decades - would keep or sell its shares with this goal in mind.

Ryanair chief executive Michael O'Leary argued that "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."

O'Leary added: "Aer Lingus, as a small stand-alone regional airline has been marginalized and bypassed as most other EU flag carriers consolidate."

In addition to the government's 25 per cent stake, Aer Lingus employees and pensioners hold more than 18 per cent of the company in investment trusts.

Ryanair launched its previous bid for Aer Lingus in October 2006, barely a week after the government floated the previously state-owned airline on the Irish and British stock exchanges.

Ryanair's offer at that time of 2.80 euros per share - double Monday's bid - was rejected by the Irish government and Aer Lingus unions and employees, who fear Ryanair's cost-cutting approach to business.

And European Union competition authorities ruled in mid-2007 that a merged Ryanair-Aer Lingus would create a monopoly.

Analysts say Ryanair stands a much better chance now of persuading the Irish government, Aer Lingus employees and EU regulators because of Ireland's slide into recession and the airline's stumbles.

"Ryanair is very correct in saying that what Ireland needs is one very strong airline," said Jim Power, chief economist of Friends First bank in Dublin.

Manus Cranny, an analyst at MF Global Spreads in London, said O'Leary had timed Ryanair's offer "incredibly" because of the Irish government's need for cash and growing fears at Aer Lingus of lost jobs and benefits.

But he noted O'Leary's reputation as an "absolutely aggressive businessman running a fierce company."

Non-union Ryanair, with 108 aircraft, continues to grow its fleet and has a cash reserve exceeding two billion euros.

Aer Lingus, by contrast, has reversed its expansion plans and warned it faces growing losses unless unions agree to slash employee costs.