Ryanair Told to Cut Aer Lingus Stake by U.K. Regulators
By Benedikt Kammel - Aug 28, 2013 3:39 AM ET
Ryanair Holdings Plc (RYA) was ordered by the U.K. antitrust regulator to cut its stake in Aer Lingus Group Plc (AERL) to no more than 5 percent to address competition concerns, a ruling the discount carrier vowed to contest.
Ryanair’s 29.8 percent holding in the Irish airline, valued at about 261 million euros ($349 million), affects Aer Lingus’s policy and strategy, the U.K. Competition Commission said in a report today. Dublin-based Ryanair said it will challenge the decision, which it called “manifestly unsound.”
“This prejudicial approach to an Irish airline is very disturbing, coming from an English government body that regards itself a model competition authority,” Ryanair Chief Executive OfficerMichael O’Leary said in a statement.
Europe’s largest low-cost carrier has been at odds with competition authorities in Europe since it first acquired Aer Lingus shares as part of a takeover bid in 2006. O’Leary’s most recent offer for the smaller rival was blocked in February by the European Union, which ruled it would increase fares and reduce choice.
Aer Lingus welcomed today’s decision, saying Ryanair had used the stake as a “Trojan horse” to plot its bids. Shares of Dublin-based Aer Lingus dropped as much as 2.9 percent to 1.65 euros, and traded at that level at 8:34 a.m. Ryanair dropped 2 percent to 6.39 euros.
O’Leary, speaking in an interview on Bloomberg Television today, said he’s been actively searching for a buyer for the stake for years, and that “nobody” is interested in Aer Lingus, which he called a “peripheral” airline that’s been bypassed by consolidation in the European aviation industry. The stake may be “worthless” if no buyer comes forward, he said.
Ryanair argues that Aer Lingus plays an insignificant role connecting the U.K. and Ireland, serving just six routes, while Ryanair maintains a major network. At the same time, O’Leary criticized the authorities for not intervening when IAG’s Plc’s British Airways won permission to purchase BMI last year to gain a greater foothold at Heathrow, Europe’s busiest hub.
When the U.K. competition authority published its preliminary report in May, it sought views on remedies, which could have included the full or partial sale of the Aer Lingus stake. The regulators typically give companies as long as a year to sell down a stake. Ryanair may be able to delay the enforcement of any U.K. ruling for years while it challenges the European Union decision to block its most recent bid.
“We consider that there is a tension between Ryanair’s position as a competitor and its position as Aer Lingus’s largest shareholder, and that Ryanair has an incentive to weaken its rival’s effectiveness as a competitor,” the U.K. antitrust authority said in its final ruling today.
Ryanair’s most recent offer valued Aer Lingus at 694 million euros. Among remedies proposed by the company, Ryanair had offered to sell a minority stake in Aer Lingus, which it said the U.K. watchdog has “inexplicably dismissed.”
Possible buyers of the stake that Ryanair must sell include Etihad Airways PJSC, the Middle Eastern carrier that has been buying holdings in airlines from Germany to Serbia and the Seychelles. Abu Dhabi-based Etihad already owns just less than 3 percent of Aer Lingus, though O’Leary has said the airline has made no offer for Ryanair’s stake.
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