Is Ryanair playing a poker game?

The Taoiseach (Irish Prime Minister) Enda Kenny said that his government was keeping an ‘open mind’ on Ryanair’s new takeover bid for the Irish national carrier, Aer Lingus. He stressed that he wouldn’t be “shoved into a fire sale” because of the country’s economic difficulties.

Ryanair offered €1.30/share for its main Irish rival on June 20th last which is its third bid since Aer Lingus was floated in 2006. The National carrier’s share price surged up to €1.11 on the news.

Ryanair has nearly a 30 per cent stake in Aer Lingus making it the largest shareholder in the company. The Irish government’s stake is 25 per cent.

In 2007 the European Union competition authorities ruled that a Ryanair-Aer Lingus merger would constitute a monopoly in Dublin.

Kenny is however in a difficult position on this latest in the ongoing saga between the two airlines. Ryanair is arguably Ireland’s most dynamic and successful business currently sitting on cash reserves of €2.7bn.

Kenny, on the other hand, took over the reins of government last year after Ireland had to negotiate a €67.5bn international bailout. Part of the deal involves selling off up to €2bn in state assets. And this is where its stake in Aer Lingus comes in to play.

Notably, while Kenny said that he would not be shoved into a fire sale, he also said that the government’s 25 per cent stake will no longer be used as a blocking tool on any potential sale.

Based on the latest bid, Aer Lingus is valued at €694 million and would in theory yield Kenny a much needed €173 million if the sale went ahead.

But the Irish government and Europe’s concern is that a sale can only go ahead if sufficient competition on routes, fares and customer service can be guaranteed.

Michael O’Leary, Ryanair’s outspoken CEO and the king of poker knows how to play his hand in any negotiation. As one experienced commentator maintains, Ryanair’s bid might be a ‘smokescreen’ to manipulate the Aer Lingus share price higher prior to a sale to another airline and thereby recover some of the millions lost since it first invested in the carrier.

A possible buyer, Etihad Airways of the United Arab Emirates purchased a three per cent stake in Aer Lingus earlier this year and also expressed an interest in the Irish government’s holding.

And there may be other ‘hidden’ contenders waiting to snap up either the governments or even Ryanair’s shares.

However, if O’Leary is indeed serious about buying Aer Lingus it would make Ryanair the dominant player in the Irish airline business but it would also give him Aer Lingus’ most valuable asset as well - the Heathrow slots – in the only major London airport Ryanair currently doesn’t use. Airlines covet slots at Heathrow, one of Europe's biggest hubs and the fear is that if O’Leary got his hands on them he would sell them off.

However, with so much opposition to any potential deal stacked against Ryanair why are they doing it now?

Ask the poker player. He knows what’s in his deck of cards!