Analysis: EU rebuff won't free Aer Lingus from Ryanair grip

Tue Feb 26, 2013 10:44am EST
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By Conor Humphries

DUBLIN (Reuters) - The European Commission looks certain to end Ryanair's seven-year pursuit of Aer Lingus, but Brussels can't stop the low-cost carrier from using its stake to keep its rival in limbo for years.

The Commission, which acts as Europe's anti-monopoly watchdog, has told Ryanair it will reject its 694 million euro ($917 million) bid in an announcement expected on Wednesday.

A veto, which would be the first time it has twice rejected a proposed takeover, could force Ryanair chief Michael O'Leary to decide whether to finally set its smaller rival free by selling its 30 percent stake.

But if O'Leary follows through on a threat to attempt to become the first company in a decade to overturn an EU anti-monopoly decision, the process could tie up the stake for years.

It would also likely scare off other strategic investors and stymie the Irish government's efforts to offload its own 25 percent stake - part of a package of privatizations required by its 85 billion euro EU-IMF bailout.

"The government and Aer Lingus will simply have to wait and see what Ryanair chooses to do," said analyst David Holohan at brokerage Merrion Capital. "Until the Ryanair process is completed, I think the government will struggle to find a buyer."

Aer Lingus, long since eclipsed in terms of the number of passengers carried by its budget rival, has made no secret of its wish to remove Ryanair from its share registry, arguing Ryanair uses its 30 percent shareholding to disrupt and distract its one significant competitor on the Irish market.

Dropping Ryanair would also clear the way for an investment by a large industry investor with deep pockets, like minority shareholder Etihad, or boost the company's "free float" of readily tradeable shares, which Aer Lingus believes would help lift its share price.   Continued...

An Aer Lingus plane docks at the gate at the Chopin International Airport in Warsaw February 6, 2012. REUTERS/Peter Andrews