Ryanair Offer For Aer Lingus Over -- For Now

December 20, 2006

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A take-over bid by Europe's largest low-cost airline Ryanair for fellow Irish airline Aer Lingus ended on Wednesday after European competition authorities decided to examine the deal further.

But Ryanair said it intended to make a second offer if the European Commission gave its go-ahead for the deal following the extended investigation.

The deal had been expected to fail in any case this time around due to opposition from key Aer Lingus shareholders. They had been given until December 22 to accept the offer, which values Aer Lingus at EUR1.48 billion (USD$1.95 billion).

The European Commission decided on Wednesday to open an in-depth -- or Phase II review -- of the proposed deal after competitors and customers said the initial package of remedies offered by Ryanair did not meet their competition concerns.

"Following today's decision of the European Commission to refer the acquisition of Aer Lingus to Phase II, Ryanair's offer lapses... with immediate effect and all acceptances of the offer received to date are void," Ryanair said in a statement.

"Ryanair also announces that in the event of European Commission clearance following its Phase II review, Ryanair intends to make a further offer for Aer Lingus," it added.

Making a second offer would require take-over Panel consent since it would fall within 12 months of Ryanair's first offer.

The Commission said although Ryanair submitted an improved proposal on competition remedies at a late stage, there was not enough time to decide if it solved problems raised by the deal.

"The proposed acquisition would raise serious competition concerns in the passenger air transport sector and in particular could reduce choice for consumers and could give rise to higher fares than would be likely if the two carriers remained separate," it said in a statement.

The new deadline for a decision is May 11.

Chief Executive Michael O'Leary said Ryanair did not accept the Commission's argument that it did not have sufficient time to consider Ryanair's proposed remedies to competition issues.

"Ryanair is aware that in previous airline consolidations the final remedies were still being tested and negotiated between the airlines and the European Commission the night before the decision was due," he said in a statement. "This was particularly so in the case of the Air France-KLM merger."

O'Leary said the decision to refer the take-over to a Phase II probe flew in the face of the European Commission's stated policy of encouraging consolidation amongst European airlines.

"Given that much larger airline consolidations have been approved under the Phase I process, it is difficult to understand the Commission's failure to follow its own stated strategy of promoting airline consolidation by granting Phase I approval in this case," he said.

However, he said Ryanair was confident its offer would win EU competition approval under the Phase II procedure.

Aer Lingus shareholders had been given until Friday to accept Ryanair's 2.80 euro per share offer but two of the group's three largest shareholders had already refused to sell.

The Irish government, which owns around a quarter of Aer Lingus shares and is its biggest shareholder, said it would not sell its stake under any circumstances.

Aer Lingus's Employee Share Ownership Trust (ESOT), which has nearly 13 percent of the stock, also rejected the offer.

Ryanair is Aer Lingus's second largest shareholder.

Ryanair and Aer Lingus account for most take-offs and landings at Ireland's Dublin Airport. They fly 500 routes around Europe carrying more than 50 million passengers annually but compete on only 17 routes, in particular those to Britain.

(Reuters)