Ryanair May Raise Aer Lingus Offer

January 13, 2009

Ryanair will raise its EUR750 million euro (USD$1 billion) offer for rival Irish airline Aer Lingus in January, and that could move shareholders to accept it, analysts at Merrion Capital said on Tuesday.

Ryanair has said repeatedly that its offer of 1.40 euros per share was generous and it was confident of its success, but holders of only 0.01 percent of Aer Lingus shares accepted it by an initial January 5 deadline, which Ryanair extended to February 13.

Aer Lingus has said the offer undervalued it and could not go through.

"We believe Ryanair's intent is serious and that it will raise its offer -- and will do so before the last date for amending its offer, January 30," analysts at Merrion said in a research note.

"In that event, we would expect ordinary Aer Lingus shareholders to urge their board to engage meaningfully with the bidder, as Ryanair is likely to be precluded from returning for 12 months if its offer lapses," Dublin-based Merrion said, maintaining a "Buy" recommendation for Aer Lingus stock.

Shares in Aer Lingus have traded above the Ryanair offer price since December 5, four days after Ryanair's offer, which it made at half the price of an earlier failed bid in 2006.

Ryanair, which already owns almost 30 percent of the former state airline, said its offer represented a 28 percent premium over Aer Lingus shares' average closing price for the 30 days to November 28, the last trading day before the offer.

"Ryanair's offer price of 1.40 euros per share for Aer Lingus is clearly not high enough," Merrion said.

"We believe that an offer price would have to be at least within the 2.07-2.67 euro range to have a realistic chance of engaging the target board in meaningful discussions.

The Irish government and Aer Lingus employee group ESOT, which own 25 and 14 percent of Aer Lingus, respectively, and which rejected Ryanair's 2006 offer, have not published their intentions this time.

Unions at Aer Lingus are opposing the offer.

"A more realistic offer price from Ryanair will force the government to clarify its stance on non-price issues," Merrion said.

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