British Airways owner International Airlines Group is unlikely to press on with its €1.36bn bid for Aer Lingus if the Irish government refuses to back the deal, City analysts said.
There have been concerns in Ireland - ahead of next year’s election - about jobs and key routes to Heathrow if the bid goes through. The government owns a 25% stake in Aer Lingus and its potential opposition could yet see the offer collapse despite the airline’s board recommending the deal. Analysts at Liberum said:
Bloomberg and several other press sources suggest that the Irish government is set to reject IAG’s proposed takeover of Aer Lingus. IAG’s indicative offer is pitched at €2.55, 21% above last night’s close of €2.11, which implies the market sees material uncertainty in the deal being completed. Irish domestic politics seems to be the key obstacle, with a general election due next year and the backing of the takeover offering limited political upside but considerable ammunition for political opponents.
We see Irish government backing as crucial to the success of any deal, over and above the 25% stake in Aer Lingus it controls. We do not consider the retention of an Irish government stake post-deal to be viable.
At the current 25% level, the stake would offer material obstacles to IAG’s control (especially once other hold outs are added). Even at a lower level, the threat of government interference backed by a large stake would be a showstopper, in our view.
We do not see the acquisition of Aer Lingus to be a must-have for IAG. Consequently, if a deal cannot be completed on the current terms, we would expect IAG to walk away.
IAG shares are currently up 1p at 537.5p while Aer Lingus is up just over 1% at €2.14.
