Interactive Investor

IAG makes third bid for Aer Lingus

26th January 2015 14:50

Lee Wild from interactive investor

Six weeks after International Airlines Group put out the feelers with an initial offer for Aer Lingus, the British Airways owner is back with a third bid which the Irish carrier will find hard to refuse. Of course, the involvement both of Ryanair (29.9% stake in Aer Lingus) and the Irish government as major shareholders complicates matters, but that talks are ongoing is certainly encouraging.

IAG has offered Aer Lingus €2.50 a share in cash plus a dividend of €0.05 a share, up from the previous pitch of €2.40 in cash and €2.30 before that. "The revised proposal remains conditional on, amongst other things, confirmatory due diligence, the recommendation of the board of Aer Lingus and the receipt of irrevocable commitments from Ryanair Limited and the Minister for Finance of Ireland to accept the offer," said Aer Lingus Monday.

"The board is considering the revised proposal." And well they might. Aer Lingus shares are up over 80% since October and at their highest since summer 2007.

"This looks to us like a holding statement as negotiations continue," says Stephen Furlong, an analyst at broker Davy. "We expect a recommended offer and believe that it is in the interests of both parties." He recently upgraded his target price for IAG to 600p from 580p.

It is little wonder IAG wants Aer Lingus, a long-time target of Ryanair whose own ambitions were eventually thwarted by the competition authorities. Aer Lingus has 23 valuable Heathrow slot pairs, and its fleet of short-haul A320 jets would sit well alongside IAG's existing operators - Iberia, British Airways and Vueling - which have all integrated well.

Of course, it's a deal IAG boss Willie Walsh would love to nail. It's where he began his career as a pilot in 1979 aged 17, eventually becoming chief operating officer then CEO in 2001. One might hope he works the same magic with Aer Lingus as he has done with Iberia, once a basket case of an airline beset by union problems.

"At the heart of this bid may well be a desire to keep Ryanair out of Heathrow although with the budget airline having been so far denied access in its three previous attempts to take over Aer Lingus there was no immediate prospect of that happening," says aerospace consultant Howard Wheeldon.

"As to the stance that the Irish Government might take I suspect that while they will be keen for reassurance on IAG's investment, service intentions and use of the valuable number of London Heathrow landing and take-off slots that Aer Lingus currently own I find it difficult to imagine that assuming that IAG provides them with the outcomes they require they would be unlikely to oppose the will of Air Lingus board."

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