OFT Probes Ryanair's Aer Lingus Stake

October 29, 2010

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The Office of Fair Trading (OFT) launched an investigation into Ryanair's minority stake in Aer Lingus on Friday in a surprise move that prompted a scathing response from the low-cost airline.

The OFT said it was investigating whether Ryanair's near 30 percent holding in its Irish rival gave it the power to influence Aer Lingus's commercial policy and hampered competition.

The probe comes three years after Brussels rejected Ryanair's bid for Aer Lingus, and analysts said the likelihood the investigation would proceed was slim given the time that has elapsed and the European Commission's view that Ryanair did not exert control over Aer Lingus.

The Commission prohibited Ryanair from trying to take over Aer Lingus in 2007. In July 2010, the European courts ruled the Commission did not have the ability to force Ryanair to divest its minority stake in Aer Lingus because it did not confer "decisive influence."

"Given the termination of the European Commission investigation and related litigation, the OFT is now considering the acquisition (of the shares)," the OFT said in a statement.

"I was surprised at seeing this this morning, and I would be equally surprised to see that anything is taken forward but again this is legal eagles, so who knows," said Stephen Furlong, an analyst with Davy Stockbrokers in Dublin.

Ryanair said the query was "out of time" and the OFT no longer had jurisdiction over the matter.

"We have asked our lawyers to liaise directly with the OFT to bring this out-of-time and unnecessary query to an early conclusion. Ryanair also calls on the OFT to close these queries without delay," chief executive Michael O'Leary said in a statement.

Aer Lingus, which has twice repelled bids from Ryanair, said it welcomed the OFT's move.

"Individual member states remain free to apply their national competition law to Ryanair's shareholding. Aer Lingus will cooperate in full with the OFT in this investigation," the company said in a statement.

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The OFT will decide whether or not to refer its probe to the Competition Commission for further investigation on December 24.

In the meantime, the outside chance that Ryanair would be forced to sell its stake, currently valued at around EUR€180 million, could hamper Aer Lingus' share price.

Analysts said the impact on Ryanair, which has written the stake down to a minimal amount, would be limited.

"It does create a little bit of uncertainty in the Aer Lingus shareholding and in the short term that probably puts some weakness rather than strength into the price," said Furlong of Davy Stockbrokers.

Ireland's government is currently considering whether to sell its 25 percent stake in Aer Lingus to help shore up a battered public purse and if Ryanair was forced to divest its holding it could encourage potential buyers, who up until now have been put off by Aer Lingus' limited free float.

(Reuters)