December 19, 2014, Proactiveinvestors
IAG (LON:IAG) is expected to continue its pursuit of Aer Lingus (LON:AERL) despite the Irish carrier turning down an £860mln approach.
The British Airways owner is said to be eyeing Aer Lingus’s slots at Heathrow as the Dublin-based carrier is the third biggest airline at the airport.
But an approach at the start of the week was rejected on Thursday after the Aer Lingus board said it “fundamentally undervalued” the company.
Cantor Fitzgerald analyst Robin Byde said this isn’t the end of the story.
“Generally, we think that the future of smaller airlines in Europe remains uncertain due to intense competition in short-haul.
“The fit with IAG is a good one and we expect IAG to consider a further offer.”
Any takeover of Aer Lingus would require the backing of Ryanair and the Irish government, as they both hold major stakes in the company.
Ryanair owns 30% and has been thwarted in repeated attempts to buy its rival.
The Irish government owns a further 25% while there are other shareholders with smaller holdings but who still have significant influence over the airline such as media tycoon Denis O’Brien.
UK and US competition authorities would also look closely at route concentration, particularly on transatlantic routes, if a transaction did proceed.
As IAG has felt able to make an offer, Byde said this indicates stakeholders have already been sounded out and some early assurance given.
IAG chief executive Willie Walsh – formerly a pilot and chief executive at Aer Lingus – put in the bid after watching shares in the Irish firm advance close to 50% this year.
The airline has upgraded its earnings outlook twice following a profit warning in June. It currently has a market value of €1bn.
Shares in both firms advanced today with IAG adding 6p to 469p and Aer Lingus gaining 2% to €2.02.