Market reaction: Ryanair chief Michael O'Leary is facing numerous hurdles in his efforts to execute an unexpected takeover approach for Aer Lingus, analysts warned.
As investors digested news of the audacious bid, Ryanair shares closed 7 cent weaker at €8.63 yesterday. Certain analysts questioned whether the transaction would go ahead at all and others said ownership of Aer Lingus would be a distraction for Ryanair's own management team.
There was little by way of public comment from Dublin brokers, but brokers in London cited resistance from the Government and Aer Lingus staff among the biggest challenges to a deal.
"Ryanair's track record of hostility towards the Irish Government seems unlikely to attract the support of the Government for the venture.
"We think the Government would be concerned about leaving Irish aviation reliant on Michael O'Leary, who would have the ability to influence transport and labour policy," said ABN Amro analyst Andrew Loddenberg.
"We are extremely surprised by the bid and at first glance see limited chances of it succeeding. We struggle to envisage a white knight emerging, unless a wealthy domestic entrepreneur steps forward. We think Ryanair is looking for speculative investment gains, publicity and political gain. It will likely gain all of these. We don't think it will gain a medium-sized airline with a shamrock on the tail."
In addition, Deutsche Bank in London pointed out that a takeover would move Ryanair stock away from being a pure low-cost carrier play to a position in which it had exposure to a network carrier "that has a weak market position" vis-à-vis its global peers.
"We think implementing the deal will be tough - to give one example, both companies have fundamentally different fleets. Aer Lingus is heavily unionised and we believe all current Aer Lingus stakeholders will wish to see the long-haul business developed aggressively," said Deutsche analyst Chris Reid.
"Bulls of Ryanair will argue this deal gives the company option value and financially it might be possible to justify the deal, but we would say: if the growth in short-haul is so good, why is a highly-rated pure-play low-cost carrier bothering to move into the long-haul market where companies have half the rating?"
While Mr Reid said Ryanair provided "no colour" on synergies, Collins Stewart analyst Andrew Fitchey said that a takeover opened up the possibility of huge synergies.
"While Ryanair is saying it will operate Aer Lingus as a separate entity, it will only continue to run profitable routes. Ryanair can transfer its low-cost practices. Ryanair's return is circa 16 per cent on its fleet, Aer Lingus's is 12.5 per cent," Mr Fitchey said.
Mr Fitchey said the combined airlines would have increased bargaining power at Dublin Airport but added that the "key issue" was Government and regulatory approval. "Ryanair is uniquely positioned to buy Aer Lingus. It's majority Irish-owned and needs to satisfy long-haul bilaterals."
