Ryanair Raises Stake in Rival Aer Lingus

Budget airline Ryanair Holdings PLC has raised its stake in Irish rival Aer Lingus Group PLC to 25.2 percent in a renewed push to take over the recently privatized carrier, Ryanair's broker confirmed Wednesday.

Davy Stockbrokers in Dublin said it purchased nearly 31.8 million Aer Lingus shares Tuesday for about 87.4 million euros ($115.1 million) on behalf of Ryanair, raising the carrier's stake from 19.2 percent to 25.2 percent, or nearly 133.4 million shares.

Trading in Aer Lingus, the former state-owned airline that debuted on the Irish and British exchanges Sept. 27, was exceptionally heavy in the last hour of business Tuesday, when its previously slumping share price surged 0.10 euro cents (13 cents) to 2.75 euros ($3.62).

Aer Lingus Chief Executive Dermot Mannion said he understood that Ryanair now owned more than 25 percent of his airline. He conceded this meant Ryanair's interest "isn't going away any time soon," but reiterated Aer Lingus' determination to remain independent.

The raised stake does not markedly improve the chances that Ryanair's bid, launched Oct. 5 at 2.80 euros ($3.69) a share, will reach the minimum 50 percent ownership threshold it requires to succeed. Investors opposed to a buyout control more than 46 percent of Aer Lingus shares.

The anti-Ryanair bloc includes the government, which retained 25.4 percent when it sold off most of its holding; a trust representing more than 4,600 current and former Aer Lingus employees that holds 12.6 percent; pension and investment funds controlled by Aer Lingus pilots that hold more than 4.5 percent; and Irish telecom tycoon Denis O'Brien, who bought a 2.1 stake specifically to complicate Ryanair's campaign.

However, raising its ownership of Aer Lingus above 25 percent will afford Ryanair increased rights to meddle in the key decision-making of its major Irish competitor. Ryanair could wield a blocking vote at extraordinary general meetings, when Aer Lingus chiefs could be seeking shareholder approval to buy airlines, expand route networks or make other strategic decisions to improve its head-to-head competition with Ryanair.

The increased Ryanair stake also makes it even tougher for any other potential suitor, such as British Airways PLC, to mount its own takeover bid for Aer Lingus. British Airways is run by Willie Walsh, who previously oversaw the drastic 2002-05 restructuring of Aer Lingus and tried to persuade the government to accept a management buyout of the Irish flag carrier. Aer Lingus and British Airways also have a code-sharing agreement.

Aer Lingus came close to bankruptcy in 2001 because of a bloated payroll and collapsing business on its key U.S. routes in the wake of the Sept. 11 terrorist attacks. Walsh slashed staffing in half, shifted business to lower-fare European destinations and adopted an Internet-based sales system similar to Ryanair's - a formula that saw Aer Lingus become one of the few profitable state-owned airlines.

Ryanair Chief Executive Michael O'Leary says his company, if successful in acquiring Aer Lingus, would preserve the brand but make the airline much leaner. He says this could mean cutting another 1,000 of the 3,300 current workers - a key reason why the government, labor unions and Aer Lingus employee shareholders are so hostile to the bid, which offers investors a 27 percent premium on the IPO price.

Shareholders have until Dec. 4 to accept or reject the bid. So far, Ryanair says only 0.12 percent of affected shareholders have returned forms accepting the offer, which becomes valid only if Ryanair can secure a minimum 50 percent. If it fails, Ryanair has until Dec. 8 to decide whether to relaunch a sweetened bid.

Aer Lingus is expected to publish its final arguments against a Ryanair takeover on Friday - a plan expected to detail its less drastic plans to cut costs and boost efficiencies. European Union competition chiefs are expected to publish their initial findings on the matter next week, although officials in both airlines do not expect the EU to offer any clear-cut views because the current Ryanair bid appears unlikely to succeed.

Shares in Aer Lingus lost their initial gains Wednesday and were flat at 2.75 euros ($3.62) on the Irish Stock Exchange. Ryanair rose 21 euro cents (28 U.S. cents), or 2.2 percent, to 9.65 euros ($12.71).


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