UK Regulator Rules Ryanair May Need to Sell Stake in Aer Lingus

on May 31, 2013
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Ryanair Holdings (LON:RYA), Europe’s largest discount airline, may be forced to sell all or part of its shares in Aer Lingus Group Plc. (LON:AERL) following a ruling by the UK’s Competition Commission, which has found that the shareholding gives Ryanair “the ability to influence the commercial policy and strategy” of its Irish rival.

The ruling is the latest blow to Ryanair’s attempts to take control of Aer Lingus, which have also been strongly opposed by Brussels.
**Provisional ruling**
As iNVEZZ wrote on May 29, the two Dublin-based companies together carry more than 80 percent of the passengers travelling between Ireland and the UK every month, (Ryanair To Seek Shareholder Approval To Buy 175 Boeing 737-800), which has raised concerns that the ownership of a large stake in Aer Lingus by Ryanair could potentially hurt competition and increase fares. Ryanair owns 29.8 percent of Aer Lingus’ shares and has tried several times to take control of the airline in recent years.

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Yesterday, the UK’s Competition Commission published a provisional ruling which found that the current size of the shareholding could hurt competition on routes between the UK and Ireland and hinder Aer Lingus’s ability to be acquired or merge with another airline.
“While not giving it control over day-to-day running of its rival, Ryanair’s minority shareholding can influence the major strategic decisions that could be crucial to Aer Lingus’s future as a competitive airline on these and other routes,” the Financial Times quoted Simon Polito, the commission’s deputy chairman, as saying on Thursday.

The size of the shareholding also meant that Ryanair could block special resolutions by Aer Lingus and limit its plans to issue shares or raise capital, the regulator said.
Possible solutions listed in the ruling include requiring Ryanair to sell its entire stake or part of it as well as imposing safeguards on Ryanair to protect competition.
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Aer Lingus welcomed the provisional ruling, saying that the company looked forward to continuing to assist the UK’s anti-trust regulator in its investigation “into the anti-competitive effects of Ryanair’s minority shareholding”.
Ryanair’s Chief Executive Officer Michael O’Leary argued that the ruling was “bizarre and manifestly wrong”. He also suggested that the commission should investigate British Airways’ takeovers of BMI, Iberia and Vueling.

The report is provisional, which means that Ryanair will have time to respond. The commision’s final report is expected on July 11.
The European Union has also strongly opposed Ryanair’s attempts to take control of Aer Lingus. In February Brussels blocked Ryanair’s third bid in eight years to take over the airline, saying that the proposed deal would create a monopoly on dozens of UK-Ireland routes and increase fares for passengers.
**The Ryanair share price was €6.85 as of 10.03 GMT, 30.05.2013
The Aer Lingus share price was €1.58 as of 10.03 GMT, 30.05.2013**

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