11th Jun 2015 12:13
LONDON (Alliance News) - The UK anti-trust regulator Thursday issued a final order requiring Ryanair Holdings PLC to sell down its 29.8% stake in Irish rival Aer Lingus Group PLC to 5%, boosting International Consolidated Airlines Group PLC's chances of successfully acquiring Aer Lingus although potentially also significantly delaying that outcome.
The final ruling should mark the culmination of a long-running battle between the regulator and Ryanair, which has several times said it should not be required to sell down the stake it had built up when trying to buy Aer Lingus itself three times.
However, Ryanair said Thursday that it will appeal the regulator's "ridiculous" ruling to the Competition Appeal Tribunal, and will also seek permission to appeal the "unsustainable" 2013 report that contained the CMA's initial arguments to the UK Supreme Court, which could substantially delay the takeover of Aer Lingus by IAG if the Supreme Court agrees to hear the appeal. Ryanair has already had an appeal over the 2013 decision turned down by the Competition Appeal Tribunal and then the High Court, a process that took almost two years.
The battle with the UK regulator has become a matter of pride for Ireland's Ryanair and its forthright Chief Executive Michael O'Leary, but is also a factor in Ryanair's part in IAG's attempt to acquire Aer Lingus. If Ryanair had been allowed license to decide the fate of its Aer Lingus stake itself, it could have used that as leverage to try and extract a higher offer from IAG, or to get concessions like landing and takeoff slots for Ryanair. However, the Competition and Markets Authority's decision means it doesn't have that leverage as it has to sell the stake anyway.
The CMA had released a provisional decision in April saying it still expected Ryanair to comply with its initial order to sell down the Aer Lingus stake, after Ryanair said IAG's bid for Aer Lingus had changed the situation. The regulator disagreed. It has now confirmed that sale order.
Ryanair was typically forthright in its response, calling the CMA's decision "ridiculous" and "manifestly wrong" and saying it "flies in the face" of the current IAG takeover offer for Aer Lingus.
"When the only basis for the CMA's original divestment ruling was that Ryanair's minority shareholding was or would prevent other airlines making an offer for Aer Lingus, the recent offers by IAG for Aer Lingus totally disprove and undermine the bogus theories and invented evidence on which the CMA based its untenable divestment ruling," Ryanair said.
"Simon Polito and his group were unable to establish any consumer harm arising from Ryanair's minority stake in Aer Lingus and instead resorted to speculating (in the CMA's August 2013 report) that Ryanair's 29.8% shareholding would deter other airlines from merging with or bidding for Aer Lingus. IAG's current offer for Aer Lingus proves that the the CMA's invented theory of harm was hopelessly wrong, and is now unsustainable given that the circumstances have manifestly changed, and accordingly the divestment remedy must be revoked in light of this compelling evidence," it added.
IAG has made a EUR1.4 billion offer for Aer Lingus, and has won the backing of the Irish government for the deal, the Irish flag carrier's other major shareholder with a 25% stake. That meant the success of the bid is dependent on Ryanair accepting the deal.
"IAG's bid for Aer Lingus is dependent on securing Ryanair's agreement to sell its shareholding. This recent development illustrates that Ryanair can decide whether a bid for its major competitor on UK/Irish routes succeeds or fails," Simon Polito, chairman of the Ryanair/Aer Lingus inquiry group at the CMA said as he explained the regulator's decision.
"This concern was an important part of our decision to require Ryanair to reduce its shareholding. It's not good for competition when one company holds such an influence over the future of one of its major competitors," he added.
"Although at this point Ryanair has yet to decide whether to sell its shares to IAG, we need to ensure that, whatever happens in relation to this particular transaction, Ryanair's ability to hold sway over Aer Lingus is removed," he said.
The regulator said it would ensure that the implementation of Ryanair's share sale order "interacts effectively" with the IAG bid process for Aer Lingus and with the European Commission's assessment of the bid.
Ryanair Chief Executive Michael O'Leary reiterated that Europe's largest low-cost airline would look at IAG's offer for Aer Lingus when it received the formal offer document, and conceded that the IAG offer was at a significant premium to the bids that Ryanair had made for Aer Lingus. Its last attempt to buy the Irish flag carrier was two years ago, a deal that was blocked by the European Commission and rejected by the Irish government.
It was ordered by the CMA's predecessor, the Competition Commission, to sell down its Aer Lingus stake shortly after that, before IAG made a takeover offer for the airline. It had appealed that decision to the UK High Court and lost in April of this year.
However, O'Leary said Thursday that Ryanair's fight with the regulator was a separate issue to whether or not to accept the IAG bid for Aer Lingus and one he was determined to pursue.
The CEO then called on Polito to correct the "false and misleading claims" that IAG's bid for Aer Lingus is dependent on securing Ryanair's agreement to sell its shareholding and that Ryanair can decide on whether a bid for its major competitor on UK/Irish routes succeeds or fails.
Ryanair pointed out that IAG's offer for Aer Lingus has already received public acceptances from both the Irish Government and Middle East airline Etihad, which own approximately 30% of Aer Lingus between them. It correctly pointed out that if IAG gets acceptances from Aer Lingus shareholders holding more than 50.1% of its voting shares, "it is clear that there is nothing Ryanair can do to prevent IAG acquiring control of Aer Lingus".
"No 30% shareholder can block a takeover bid if more than 50% of other shareholders accept it," Ryanir said.
However, this argument missed a key point that the CMA had also raised in its explanation for the final decision. IAG wants to buy Aer Lingus outright, and could only force remaining minority shareholders to sell if it gets more than a 75% stake in the airline, which would be impossible if Ryanair kept its stake.
"It is clear that the timing of IAG's bid has been influenced by the prospect of Ryanair being forced to sell the majority of its shareholding. IAG has said that it would not be interested in acquiring any airline with a significant minority investor. The conditional nature of IAG's bid is consistent with this and our original assessment that Ryanair's presence was likely to deter other airlines from entering into, pursuing or concluding combinations with Aer Lingus," Polito said in the CMA statement.
Aer Lingus noted the CMA's announcement, and its pledge to ensure that the implementation interacts effectively with the IAG takeover offer and the European Commission's assessment of the offer.
Ryanair shares were up 1.1% at EUR11.87 in London Thursday morning, while Aer Lingus was flat at EUR2.42 and IAG was up 0.7% at 526.00 pence.
By Steve McGrath; [email protected]; @stevemcgrath1
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