UPDATE 4-Ryanair concedes defeat in Aer Lingus bid

* Govt says offer undervalues Aer Lingus, hurts competition

* Ryanair says offer will not succeed

* Aer Lingus shares fall 10 percent after govt statement

* Aer Lingus and United eye joint venture

(Adds Ryanair, analyst comment)

By Andras Gergely and Kevin Smith

DUBLIN, Jan 22 (Reuters) - Ryanair walked away from its latest bid for rival airline Aer Lingus AERL.I on Thursday after Ireland's government dismissed it on competition and valuation grounds.

Shares in Aer Lingus fell 10 percent to 1.25 euros, below the 1.40 euro offer price, after the government, which owns 25 percent of the carrier, rejected the hostile all-cash offer. Ryanair’s response came after the close of trade.

It was the second time the state repulsed an offer for Aer Lingus from Ryanair after an earlier dismissal in 2006.

The latest bid was roughly half the price of its previous offer, which was blocked by the European Union on competition grounds.

The government said the latest offer undervalued Aer Lingus, adding that an aviation monopoly would not have been in the best interests of Irish consumers.

“Competition was a major consideration,” Minister for Transport Noel Dempsey said in a statement.

Analysts said the long-term future of Aer Lingus, in which employees hold a 14 percent stake, was unclear.

Exane BNP Paribas analyst Geoff Van Klaveren said Aer Lingus has a strong cash position but would find it hard to escape a wave of consolidation from groups led by Air France-KLM AIRF.PA, British Airways BAY.L and Lufthansa LHAG.DE.

“There is still the question mark what the long term future for Aer Lingus is,” Van Klaveren said. “It’s a rather small airline in a consolidating market. It’s interesting (the government) are not in favour of a strong Irish airline group.”

“Ryanair will respect and abide by the government’s decision, which means that Ryanair’s offer will not be successful, since our 90 percent acceptance condition cannot be satisfied,” Ryanair said, adding that it could not rule out another offer in the future.


Aer Lingus’ management has been striving to shrug off Ryanair’s 748 million euro ($970.6 million) bid and prove that it has a profitable future on its own.

Aer Lingus Chief Executive Dermot Mannion told Reuters he was maintaining guidance for “some level of profitability at a pre-tax level” in 2009 and similarly for 2008.

Earlier on Thursday, Aer Lingus said it would build on a codeshare agreement with United Airlines UAUA.O to launch a new route between Madrid and Washington Dulles, which it later plans to develop into a full joint venture company with at least three long-haul aircraft.

Ryanair had based its offer on the argument a loss-making Aer Lingus focused solely on Ireland would not survive on its own in the midst of consolidation across the industry.

“Ryanair will now focus all of our energies on continuing to successfully grow and develop Ireland’s biggest airline and we will ensure that Ireland will still be home to one of Europe’s big four airline groups -- Ryanair, Air France, BA and Lufthansa,” it said. (Editing by David Cowell)