Investors see scope for IAG bid on Aer Lingus to go higher

Aer Lingus's institutional investors believe there is scope for International Consolidated Airlines Group (IAG) to increase its €1.3 billion-plus offer for the Irish carrier if the pair begin moving towards a deal.

The Aer Lingus board is thought to be preparing to accept a €2.50 a-share bid from the company tabled by IAG late last week, opening the door to a sale of the former State airline to the owner of British Airways and Iberia.

It is understood that institutional investors, which hold more than 20 per cent of the Irish company, are keen to see a sale go ahead and would be willing to part with their shares at the €2.50 mark.

However, a number of them believe that IAG could be negotiated into increasing its offer further. “There is scope to go a little bit higher, but nobody is going to be particularly bothered over a few cents one way or the other,” one said.

Previous rejections

The reported €2.50 a share offer values Aer Lingus at €1.335 million and follows two approaches priced at €2.30 and €2.40 that the Irish carrier’s board rejected.

The institutional shareholders may not have been prepared to sell at less than €2.50. A number of them argued that a strong trading statement from Aer Lingus at the beginning of the month could justified offers in the €2.60 to €2.70 range.

At this stage, most of them believe it is critical that Aer Lingus “does not lose the deal”. The State floated the airline at €2.20 in 2006, although its price has only increased past this level in response to bids to buy the business.

Both the Government, responsible for the State's 25.1 per cent stake, and Ryanair, which owns 29.8 per cent, would play decisive roles in any takeover.

At €2.50 a share, Ryanair would receive €397 million for its stake. The company’s spokesman said that it does not comment on rumour or speculation.

Its chief executive, Michael O’Leary, told the media recently that the airline’s board would carefully consider any offer “if and when we receive one”, before making a decision.

The Minister for Transport, Paschal Donohoe, said that the Government would look at any offer for Aer Lingus from the perspective of both its value and potential impact on the Republic’s links with the rest of the world.

"I and the Government will take huge care in evaluating any proposal that comes in," Mr Donohoe stressed. He is already under fire from Opposition politicians who claim that a sale of Aer Lingus to IAG will see the airline lose its valuable landing rights in Heathrow, damaging the Republic's trade and tourism links.

Heathrow routes

However, industry watchers do not believe that a deal threatens the Heathrow routes, including those from Cork and Shannon, which are regarded as most vulnerable. Instead it is understood that IAG may consider promoting these services, which already feed valuable traffic to subsidiaries such as BA.

Aer Lingus has a large number of retail shareholders, many of them current and former staff who received their stake through its employee share option plan.

In total it is thought that they hold 15 per cent to 20 per cent of the company. The options given to workers were priced attractively and they are thought likely to accept the €2.50 offer.

IAG chief executive Willie Walsh held the same role at Aer Lingus from 2001 to 2005.