Guest-post by Ivo Pezelj: Ryanair’s “unconditional” offer to sell Aer Lingus stake comes with one big condition
In the latest episode of Ryanair – Aer Lingus saga, the Europe’s largest low cost carrier once again showed just how easily it takes control of the masses in its favor.
This time, Ryanair managed to persuade a really wide audience and, to my disappointment, even some of the aviation media, that it finally placed its 29% stake in Aer Lingus up for sale to any European carrier, with the only condition being that the buyer gets support from at least 50.1% of the other Aer Lingus stakeholders (which is normal). But this could not be further from the truth.
For those less informed, Ryanair has over the years accumulated a 29% stake in Irish flag carrier (and also low cost carrier) Aer Lingus, with the intention of taking over the much smaller rival in its home market. Ryanair attempted to acquire Aer Lingus for the third time late last year, but despite a fairly extensive set of remedies this time, the regulators and competition authorities almost unanimously declined to grant Ryanair permission for the move yet again, fearing that the market would ultimately face negative effects from such outcome.
In fact, UK’s Competition Commission went a step further in late May, by informing the public that it might force Ryanair to reduce or dispose of its stake in Aer Lingus, as it not only makes it harder for Aer Lingus to find a new strategic partner, but also interferes with Aer Lingus’ decision-making:
“Whilst not giving it control over the day-to-day running of its rival, Ryanair’s minority shareholding can influence major strategic decisions that could be crucial to Aer Lingus’s future as a competitive airline on these and other routes.
“We were particularly concerned about Ryanair’s influence over Aer Lingus’s ability to be acquired by, merge with, or acquire another airline. We thought it likely that such a combination would be necessary to increase Aer Lingus’s scale and achieve synergies to allow it to remain competitive in future.”
The Competition Commission is to release its decision on the matter in September, but it is likely that Ryanair may indeed be forced to divest at least part of its Aer Lingus shareholding. Tired of all this drama, Ryanair decided to call it a day and just offer its hard-earned more-than-six-year-old close-to-30% stake to a new buyer.
Of course not. But the way Ryanair presented it in its press release makes you think so.
In its second paragraph, which is the only part of the statement in bold font, Ryanair claims the following:
“In order to dispel the CC’s unfounded and invented “concern” that Ryanair’s shareholding may prevent Aer Lingus from being acquired by another EU airline, Ryanair will undertake to unconditionally sell its 29% shareholding to any other EU airline that makes an offer for Aer Lingus and obtains acceptances from 50.1% of Aer Lingus shareholders.”
As it is always the case with Ryanair, you need to read the fine print, which in this case comes in the second last paragraph of the statement:
“In order to remove any remaining shred of credibility from this CC process and eliminate any doubt about this imaginary albeit non-existent “concern”, Ryanair has now agreed that it will unconditionally sell its 6½ year old minority stake to any other EU airline which makes an offer for, and acquires more than 50.1% of, Aer Lingus shares, at the same price and terms which are accepted by these other 50.1% of Aer Lingus shareholders. This remedy unconditionally removes any ability by Ryanair to block any future takeover of Aer Lingus by another EU airline.”
This changes everything, but unfortunately, as said in the opening paragraphs, lots of media (and consequently – the public) fell for it surprisingly easy.
To make it clear, Ryanair is only selling its stake to an airline that takes at least 50.1% in Aer Lingus, before the buyer is allowed to take Ryanair’s 29% as well. This also eliminates any potential buyers from outside the European Union, as its policy caps foreign ownership in airlines at 49%, which is not a coincidence given that Abu Dhabi-based Etihad Airways - presently a shareholder with less than 3% Aer Lingus sharers - would likely be interested in Ryanair’s stake.
The way this “unconditional” offer is structured makes it completely unlikely that any buyer will show up. In fact, Ryanair’s offer actually brings nothing new to the table. But in the eyes of public, Ryanair offered its stake, no investors showed up, and Competition Commission will be oh-so-wrong for taking its shareholding away.
Well, to be honest, I am personally against Competition Commission forcing Ryanair to divest its Aer Lingus stake. Although I am not at all in favor of Ryanair taking over Aer Lingus, I believe Ryanair has all the rights to keep the stake it accumulated so far. And if the purpose of such stake is only to make things complicated for Aer Lingus, then so be it.
Then again, this may be a good chance for Aer Lingus to gain a strategic partner that will help it increase competitiveness. A great airline like Aer Lingus deserves this, so I won’t complain.
About the Author:
Ivo Pezelj is a young airline industry observer with wide knowledge and understanding of the industry he is very passionate about. He is always up to date with the latest developments and happy to provide his insight. You will soon be able to find Ivo's analyses on Aspire Aviation.