Ryanair is examining the possibility of sweetening the terms of its offer for Aer Lingus by giving members of its Employee Share Ownership Trust (Esot) the option of a share-based deal in place of a cash transaction that would trigger a taxation liability.
Ryanair chief executive Michael O'Leary had been expected to publish a formal offer of €2.80 per Aer Lingus share early next week, well ahead of a deadline of November 1st. However, sources indicated last night that the document will not now be published for another week.
While it remains unclear whether Ryanair is prepared to offer more than €2.80 per share to secure control of Aer Lingus, its main concern is the resolution of the competition issues that would arise as a result of a deal.
The Aer Lingus Esot was careful to avoid outright rejection of the bid when Ryanair declared its hand last Thursday week but it made a point of saying that tax would considerably reduce the benefit of €60,000 per member that Mr O'Leary mooted. A paper offer, while not included in Ryanair's original proposal, could reduce the tax liability on Esot members in the unlikely event that they were to go along with a deal.
Meanwhile, the Aer Lingus pilots' pension grouping has increased its stake in the airline to 2.18 per cent. As Aer Lingus shares hovered yesterday over their closing level last night of €2.90, the airline's chief executive Dermot Mannion went on the offensive to say that regulatory hurdles in Brussels and Dublin will block the deal. "We are very clear that the Ryanair bid will be defeated," he said.
Mr Mannion declined to discuss the possibility that the share price would drop below €2.80, a development that would free Ryanair to buy more shares.
While some Aer Lingus institutional investors want to hear a deeper explanation of the airline's rejection of the bid, the airline will not publish its defence until Ryanair releases its document.
Ryanair has insisted that a deal would pass antitrust regulators in the European Commission, but analysts at ABN Amro published at paper yesterday in which they questioned its rationale for such claims. Already among the most sceptical observers of the Ryanair approach, ABN Amro said that the proposed merger faced "serious challenges" when considering the "city pairs" that both airlines fly into. It also said certain key markets - Dublin Airport among them - would be dominated by the merged entity.
"We found 26 overlapping city pairs in August 2006, with seven additional overlap routes on which one or both parties announced new services will begin during the coming winter.
"The city pair overlap markets represent 53 per cent of all short-haul flights to and from Ireland and 59 per cent of short-haul seat departures from Ireland. For Aer Lingus, the city pair overlaps represent 70 per cent of short-haul flights and seats. For Ryanair the city pair overlaps represent 61 per cent of Irish flights and seats," said ABN Amro.
It went on to say that a combined Aer Lingus-Ryanair would have a market share of 80 per cent in the top five European markets from Ireland: Britain, France, Spain, Germany and Italy.
"A combined Ryanair-Aer Lingus would have a higher seat share at Dublin Airport than Air France, KLM and Alitalia combined at Charles de Gaulle [ Paris] or Amsterdam; than Lufthansa, SAS, Swiss and Austrian at Frankfurt, Munich or Zurich; and than British Airways and Iberia at Heathrow, Gatwick or Madrid. Its frequency share at Dublin would be slightly lower than that of the Star Alliance partners at Frankfurt and Munich," ABN Amro said.
