Ryanair will this week seek to quell a potential revolt among some of its larger US investors who have raised major concerns over its €1.4 billion bid for Aer Lingus. Emmet Oliver reports.
The company said over the weekend it planned to talk to investors in the US and to explain the rationale of the move to them. This is after its largest US investor, Gilder, Gagnon, Howe and Co raised concerns about the need for the bid and its timing during a investors' conference call last week. At the weekend Howar Millar, the airline's chief financial officer, said discussions with shareholders would take place.
On Friday ABN Amro downgraded Ryanair to "hold" from "buy" following the Aer Lingus bid. ABN Amro said the bid "took us by surprise". It warned that the bid would have major problems in succeeding "because of competition policy and Government opposition."
Meanwhile analysts at Citigroup added in a note to investors that Ryanair's operations would be further complicated by the fact that Aer Lingus uses Airbus aircraft, whereas Ryanair has a fleet of Boeing 737s. One of the keys to low-cost flying is using one aircraft type as this saves on maintenance and spare parts.
Mike Powell, an analyst at Dresdner Kleinwort Wasserstein, who took part in the investor's conference call, said Ryanair shareholders might even put pressure on the airline to pull back from its Aer Lingus bid.
He told the Guardian newspaper: "There are a lot of investors who have been with Ryanair for a long time and who worship the company. They are very confused by this. I would not be surprised if the deal collapses when Ryanair shareholders say 'why are you doing this'? Mr Powell is based in Madrid and last week said he expected Ryanair to ultimately return with an improved bid.
While some sentiment has turned against the bid, Ryanair itself believes its share price has shown no signs of weakening. It closed up on Friday evening at €8.78,up 1.27 per cent.
Michael O'Leary, the airline's chief executive, said over the weekend that shareholders were in the main supportive of the bid. "I think the best indication of the response from both our European and American shareholders is that our stock price jumped up," he said.
Irish investor sentiment has been more supportive of the bid. Several of the Irish analysts see it in terms of Ryanair securing its local market on a long-term basis. Several of them point out that Ryanair's equivalent in the US - Southwest Airlines - long ago bought out rivals in its key market of California.
Some of the anxious reaction to the bid from Ryanair investors is in part stoked by anger that the company has not returned money to shareholders instead, in the form of a special dividend. Ryanair is sitting on a cash pile of about €2 billion, which it is using to fund the Aer Lingus bid.
The airline argues that an Aer Lingus bid is a better use of its cash, than putting the money on deposit. It claims an Aer Lingus bid would give a potential yield of approximately 5 per cent.
