1st Dec 2006 14:18
Aer Lingus Group PLC01 December 2006 Not for release, publication or distribution, in whole or in part, in or into or from Australia, Canada, Japan, South Africa or the United States or any other jurisdiction where it would be unlawful to do so For Immediate Release AER LINGUS GROUP PLC POSTS SECOND RESPONSE CIRCULAR Aer Lingus Shareholders advised to Reject Ryanair Offer Aer Lingus announces today that it is posting its second response circular,which explains why the Participating Directors continue to believe that theRyanair Offer is wholly unattractive, and unanimously recommend that Aer Lingusshareholders take no action in relation to the Offer. In the second response circular, the Participating Directors emphasise: o Aer Lingus' commitment to continue to reduce unit costs; o Aer Lingus' excellent prospects as an independent company; o Aer Lingus' proven track record of superior returns; o The Offer fails to adequately value Aer Lingus' intrinsic value; and o The Offer is conditional on merger clearance. Commenting on the posting of the second response circular, John Sharman,Chairman of Aer Lingus, said: "Ryanair's Offer significantly undervalues Aer Lingus. It does not reflect AerLingus' leading brand, excellent growth prospects, sought after slot positions,significant net cash balance, its valuable aircraft fleet and property assets. Today we have announced details of our ongoing programme to reduce unit costswhich we believe will deliver significant value for shareholders. We are well-capitalised, with a strong balance sheet and a management teamdelivering some of the best returns in the European aviation industry. Anindependent Aer Lingus makes sound business sense. A hostile takeover at aderisory price which will create a Ryanair monopoly in Ireland does not makesense. Aer Lingus shareholders should reject the Ryanair Offer." Dermot Mannion, Chief Executive of Aer Lingus, said: "Aer Lingus has tremendous opportunities ahead to build on the strong platformwe have put in place. We are currently working with our employees to continuethe aggressive pursuit of business efficiencies which has characterised AerLingus since 2001. We are resolute in rejecting Ryanair's wholly inadequateoffer and planning for long-term competitive growth, servicing one of the mostattractive aviation markets in Europe." * Commitment to Unit Cost Reduction Aer Lingus will continue to focus on cost and productivity as it has since 2001. Aer Lingus is targeting significant unit cost reductions in twelve key areasacross the organisation, which the Board believes will deliver significantshareholder value. Aer Lingus employees are being informed about theseinitiatives contemporaneously with the publication of the second responsecircular. The initiatives will be developed for implementation throughout 2007. * Excellent Prospects as an Independent Company Aer Lingus' short-haul expansion plans are focused on increasing density onexisting routes, it is in prime position for long-haul growth, and it isstrongly placed to reap rewards from ancillary revenue growth. * Proven Track Record of Superior Returns Since 2001, Aer Lingus has outperformed its European peer group (ex-Ryanair)driving returns higher, while Ryanair's returns have fallen. Aer Lingus' returnsare amongst the highest in the European airline sector, which is not reflectedin the multiple that Ryanair is offering. Aer Lingus is committed to sustaininghigh levels of return on future investments to deliver increased shareholdervalue. * The Offer fails to reflect Aer Lingus' Intrinsic Value The Participating Directors believe that the Offer Price does not adequatelyreflect Aer Lingus' numerous valuable assets. The Offer Price does not representa strategic premium but, if the Offer is successful, Ryanair will create adominant position or de facto monopoly on most short-haul routes to and fromDublin. * The Offer is conditional on Merger Clearance Ryanair has sought approval for its Offer from the European Commission under theMerger Regulation. A decision as to whether to refer the Offer to a Phase IIinvestigation, approve the Offer (with or without conditions) or declinejurisdiction to consider the Offer will be made by the European Commission by 20December 2006. Ryanair has offered the European Commission remedies based on the surrender ofslots to prospective new entrants, including slots at London Heathrow Airportand elsewhere controlled by Aer Lingus. The Participating Directors believe thatsuch remedies do not address the issues of overwhelming dominance at Dublinairport and the elimination of competition between the two low-cost carriers. The Participating Directors believe that Irish legal and regulatory restrictionsprevent Ryanair from offering any remedies affecting Aer Lingus without thesupport of minority shareholders. In addition, there are restrictions ondisposing of the Heathrow slots in Aer Lingus' articles of association, as wasdisclosed in the Prospectus, so Ryanair cannot offer Heathrow slots as remediesif the Minister of Finance and the ESOT do not support the proposals. The Participating Directors believe that the Ryanair Offer significantlyundervalues Aer Lingus and unanimously recommend in the second response circularthat Aer Lingus shareholders take no action in relation to the Offer. Further details of the information summarised in this announcement are set outin the second response circular, which is being posted to Aer Lingusshareholders today, and which is available on the Aer Lingus website,www.aerlingus.com. Copies of the second response circular are available forinspection at the offices of Arthur Cox, Earlsfort Terrace, Dublin 2, Ireland. Certain terms used in this announcement, including certain technical and otherterms, are defined and explained in Appendix II (Definitions) and Appendix III(Glossary of Technical Terms) of the second response circular. PRESS ENQUIRIES Aer Lingus Group plc +353 1 886 2000Gilllian Culhane Goldman Sachs International +44 207 774 1000Basil GeogheganPhil RaperNicholas van den Arend Merrion Capital +353 1 240 4100John ConroyDan Ennis Goodbody Stockbrokers +353 1 667 0400Roy BarrettFinbarr Griffin INVESTOR RELATIONS K Capital Source +353 1 631 5500Mark KennyJonathan Neilan PR ADVISERS TO THE COMPANY Drury Communications +353 1 260 5000Billy MurphyPadraig McKeon Powerscourt +44 20 7236 5615Rory GodsonVictoria Palmer-Moore The Directors of Aer Lingus accept responsibility for the information containedin this announcement, other than the information in relation to the Offer andrelated statements and opinions in response to the Offer. The ParticipatingDirectors accept responsibility for the information in relation to the Offer andrelated statements and opinions in response to the Offer contained in thisannouncement. To the best of the knowledge and belief of the Directors and theParticipating Directors (having taken all reasonable care to ensure that such isthe case), the information contained in this announcement for which theyrespectively accept responsibility is in accordance with the facts and does notomit anything likely to affect its import. The "Participating Directors" meansall of the directors of Aer Lingus other than Mr Francis Hackett and Mr MichaelJohns. Mr Hackett and Mr Johns are not, for the time being, participating in theBoard's consideration of the Offer and related matters because the ParticipatingDirectors have concluded that it would be in the best interests of the Companyand its shareholders as a whole if, for the time being, the Directors appointedby the Minister for Transport and the Aer Lingus Employee Share Ownership Trustrespectively, did not so participate. Aer Lingus is being advised by Goldman Sachs International, Merrion StockbrokersLimited and Goodbody Stockbrokers in relation to the Offer. Goldman Sachs International, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting exclusively for AerLingus Group plc and no one else in connection with the Offer by RyanairHoldings plc and will not be responsible to anyone other than Aer Lingus Groupplc for providing the protections afforded to customers of Goldman SachsInternational or for providing advice in relation to the Offer by RyanairHoldings plc or the contents of this announcement. Merrion Stockbrokers Limited, which is regulated in Ireland by the FinancialRegulator, is acting exclusively for Aer Lingus Group plc and no one else inconnection with the Offer by Ryanair Holdings plc and will not be responsible toanyone other than Aer Lingus Group plc for providing the protections afforded tocustomers of Merrion Stockbrokers Limited or for providing advice in relation tothe Offer by Ryanair Holdings plc or the contents of this announcement. Goodbody Stockbrokers, which is regulated in Ireland by the Financial Regulator,is acting exclusively for Aer Lingus Group plc and no one else in connectionwith the Offer by Ryanair Holdings plc and will not be responsible to anyoneother than Aer Lingus Group plc for providing the protections afforded tocustomers of Goodbody Stockbrokers or for providing advice in relation to theOffer by Ryanair Holdings plc or the contents of this announcement. Any person who is the holder of 1 per cent. or more of any class of shares inAer Lingus Group plc or Ryanair Holdings plc may be required to make disclosurespursuant to Rule 8.3 of the Irish Takeover Panel. Act, 1997, Takeover Rules 2001to 2005, as applied, with amendments by the European Communities (Takeover Bids(Directive 2004/25/EC)) Regulations 2006. The sources and bases for the information in this announcement are as follows: (a) Reference to focus on cost and productivity since 2001 based on source (d) for page 4 of the First Circular. Reference to targeting significant cost reductions in twelve key areas, within initiatives to be developed for implementation in 2007 is sourced from internal management objectives. (b) Statements as to short-haul expansion plans, additional flights, position for long-haul growth and ancillary revenue growth sourced from Aer Lingus announcements dated 31 October 2006 ("Aer Lingus to Increase European Network Frequency - New Routes for Summer 2007"), 2 November 2006 ("Aer Lingus Announces Significant Increases in Frequency on Long Haul Services for Summer 2007") and 1 August 2006 ("On-line Check-in and Seat Selection Enhancements to aerlingus.com - New charges to be applied to Checked-in Baggage"). (c) Reference to proven track record of superior returns based on sources (b) for Page 3, (a) and (b) for page 7, (a) and (b) for page 8, (a) for page 9 and (b) for page 10 of the First Circular. (d) Reference to out-performing European peer group based on Aer Lingus' EBITDAR per SeatEQ compared to British Airways, easyJet, Iberia, Lufthansa and Ryanair and sourced from Goldman Sachs report "European Transportation: Airlines" dated 28 April 2006. Aer Lingus' EBITDAR per SeatEQ has been calculated using Aer Lingus' audited accounts for the relevant period of EBITDAR and internal unaudited operating data for the relevant period for SeatEQ. Reference to Ryanair's fallen returns based on EBITDAR per SeatEQ and sourced from Goldman Sachs report "European Transportation: Airlines" dated 28 April 2006 (p.18). (e) References to high returns sourced as set out in paragraph (c) above. Multiples calculated on the basis of Enterprise Value divided by LTM EBITDAR. Reference to Aer Lingus Enterprise Value (EV) based on Offer Price and adjusted net debt position under IFRS as at 30 June 2006 pro forma for IPO proceeds of €400m. Adjusted net debt position based on net balance sheet debt (including financial assets available for sale and other deposits) and capitalised operating leases based on last twelve months aircraft lease costs capitalised at 7.0x, sourced from the Prospectus. Aer Lingus last twelve months EBITDAR based on published audited accounts for the twelve months to 30 June 2006, prepared on the basis of Underlying IFRS, as defined in the Prospectus. Reference to the EV of companies other than Aer Lingus based on market capitalisation information as at 29 November 2006 and adjusted net debt based on latest available company filings. Share prices and number of shares outstanding sourced from Bloomberg. Adjusted net debt based on net balance sheet debt (including financial assets available for sale and other deposits), capitalised operating leases, minority interest and net pension deficit. Capitalised operating lease based on last twelve months aircraft lease costs capitalised at 7.0x, sourced from latest available company filings. Reference to EBITDAR of companies other than Aer Lingus calculated as last twelve months EBITDA plus last twelve months aircraft lease costs. Last twelve months EBITDA and aircraft lease costs based on twelve months to latest available company filings and sourced from latest available company filings and annual reports for each company for the relevant period. (f) The reference to creating a dominant position and de facto monopoly is based on the combined Aer Lingus/Ryanair share of short-haul seat capacity from Dublin to airports in the United Kingdom, France, Germany, Spain, Italy, the Netherlands, Belgium, Portugal and Austria. The source of this information is SRS Analyser Reports and comment of European Commission in "Market Testing of Proposed Remedies" document. (g) The statement relating to Ryanair seeking approval from European Commission is sourced from Official Journal C274 10/11/2006. The statement relating to Ryanair offering remedies based on the surrender of slots is sourced from "Market Testing of Proposed Remedies - Competitors - Case No. COMP/M 4439 - Ryanair/Aer Lingus". The statements on the restrictions on offering remedies and disposing of Heathrow slots are based on the provisions of Aer Lingus Group plc Memorandum and Articles of Association, the Prospectus, the Companies Acts 1963-2005, the Listing Rules of the Irish Stock Exchange, the Merger Regulation and confidential legal advice received by the Company. Statements as to overwhelming dominance and elimination of competition based on information described in paragraph (f). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
RYA.L