Thursday, December 18, 2014

Aer Lingus Board Rejects IAG Takeover Bid: Irish Carrier Says Takeover Bid From British Airway’s Parent ‘Undervalues’ Airline

The Wall Street Journal
Updated Dec. 18, 2014 1:57 p.m. ET

LONDON—The board of directors of Irish carrier Aer Lingus has rejected a takeover bid by British Airways parent International Consolidated Airlines Group aimed at strengthening its hold over the crucial trans-Atlantic market.

IAG’s proposal “fundamentally undervalues Aer Lingus and its attractive prospects,” Aer Lingus said on Thursday. The “highly conditional and nonbinding” proposal was rejected on Tuesday, the Dublin-based airline said, as it urged shareholders not to take action.

“There can be no certainty that any further proposal or offer will be forthcoming,” IAG said.

Buying Aer Lingus would bolster IAG growth plans by increasing British Airway’s position at the congested London Heathrow hub where takeoff and landing slots are at a premium. “This is all about building IAG’s Heathrow portfolio. It would be a perfect fit,” said John Strickland, director of aviation advisory JLS Consulting.

British Airways, which has about 48% market share at Europe’s busiest airport, has been eager to secure more slots to add new routes to the U.S. and Asia. IAG previously acquired British airline BMI from Deutsche Lufthansa AG , largely to gain 42 new flight opportunities at the hub.

The bid comes as IAG emerges from years of restructuring to end losses at its Spanish unit Iberia. The company said last month it is was poised to start paying a dividend for the first time since the merger of British Airways and Iberia in 2011.

IAG Chief Executive Officer Willie Walsh , a former chief executive of Aer Lingus before joining British Airways, had said previously he was ready to do another deal after the group acquired Spanish budget airline Vueling SA last year. “We are always looking for those opportunities,” he said.

Mr. Walsh, a strong advocate of airline industry consolidation, said the experience with previous deals shows IAG can make acquisitions a success. Any new acquisition would need to support long-term growth targets, he told investors last month.

Pricing permitting “a deal could make strategic sense for IAG,” Nomura analyst James Hollins said. The combination would yield synergies, he said.

Europe’s third largest airline group has a market capitalization of £9.5 billion ($15 billion) compared with Aer Lingus’s €1 billion ($1.23 billion).

Aer Lingus is coming out of its own period of overhaul to improve the carrier’s financial performance. The shares, which surged 9% in Thursday trading, had advanced 46% this year before IAG announced it made a bid. Aer Lingus shares have rallied as the airline upgraded its earnings outlook twice following a profit warning in June. The carrier also is in the process of resolving a long-standing deficit in employee pension plans.

Departing chief executive Christoph Müller, tapped to lead struggling Malaysia Airlines , has positioned the airline to benefit from long-haul trans-Atlantic flights.

The airline is poised to add connections in the next two years. The focus on North America routes makes Aer Lingus a good fit for IAG, Mr. Strickland said.

Aer Lingus has successfully fended off previous takeover offers.

Ryanair Holdings PLC, Europe’s largest budget carrier, has tried to acquire Aer Lingus, but failed on competition concerns from antitrust regulators.

Ryanair Holdings PLC, which owns almost 30% of Aer Lingus, said it had no comment.

The Irish government, which holds a 25.1% stake in Aer Lingus, said “this is a matter for the board in the first instance and the minister [of transport Paschal Donohoe ] notes the board’s advice for shareholders to take no action.”

The Financial Times earlier reported IAG’s bid for Aer Lingus.


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