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The share prices of International Consolidate Airlines Group (LSE:AIG) and Aer Lingus (LSE:AERL) are on the rise for the second consecutive day as investors are more confident that the proposed acquisition of the Irish airline will take place. While there is still more than a little uncertainty, investor hopes were buoyed this afternoon when Aer Lingus issued an announcement that said, in part:
“Having considered this request, the board has indicated to IAG that the financial terms are at a level at which it would be willing to recommend, subject to being satisfied with the manner in which IAG proposes to address the interests of relevant parties.“
Shares of IAG rose as high as 564.00 today after opening at 549.50. By 10:30 am, IAG shares had withdrawn to 557.00, where they settled until shortly after 2:00 p.m., which, ironically is about the time that the Aer Lingus announcement was made. At this moment, the stock has gained a bit more positive momentum and is currently at 556.50 just seconds away from 3:00 p.m. UTC. IAG shares are up 1.37% on the day and 8.6% over the past five trading days.
Aer Lingus share are also up on the day, showing the favor of its investors and their response to the company’s announcement, which, unlike yesterday’s, was released after consultation with IAG. IAG’s announcement, much like Aer Lingus’ was appropriately understated. Both continued to warn that there are hurdles that need to be cleared before an agreement becomes final. Aer Lingus shares opened at 2.42, up from yesterday’s close of 2.365. Whilst the share price has “wobbled” during the day, it has managed to remain above yesterday’s close and is currently up 1.69% to 2.405.
Meanwhile the FTSE indices all declined today.
Some Conditions Apply
Whilst the board’s approval is based on the financial terms (€2.5o per share in cash and a dividend of €0.50 per share), the approval is conditional on certain other terms, to which it appears that IAG is amenable. As with any M&A, the offer is subject to due diligence, but the major condition is that Aer Lingus will continue to operate “with its own brand, management and operations, continuing to provide connectivity to Ireland.” Given the situation at Heathrow, it would be foolish for IAG to operate otherwise. Changing the branding of the airline to British Airways, for instance, would serve no legitimate purpose and would, in fact, defeat a major reason for the offer – the retention of gates and take off and landing spots at the airport.
Some Hurdles to Overcome
While there may be others, the most significant hurdles that the airlines will need to overcome include:
- The agreement of 30% shareholder, Ryanair (LSE:RYA). Lest we forget, the reason for the founding of Ryanair was to challenge “the British Airways and Aer Lingus’ high fare duopoly on the Dublin-London route.” Nonetheless, RYA would have an influx in excess of €159.8 million.
- The approval of Ireland’s Minister of Finance. Keep in mind that the Irish government is a 25% shareholder in Aer Lingus. The government would stand to gain about €133.2 million, completing the privatization of the airline that it founded in 1936.
- The trade unions of which Aer Lingus employees are members want assurances that jobs will not be cut. Aer Lingus directly employs around 3,900 people, 2,100 of which are described as ground staff in areas such as clerical, operative and back office roles.
- The approval of the EU Commission.
In my opinion, Ryanair may be the single biggest obstacle in the way, but that is a story for another day. We will continue to follow this story.
