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Money managers under the microscope

Aer Lingus optimism brings investors back down to earth

March 13, 2009

It is hardly uncommon in today’s markets to see an investment fall in value.

 

rtro9nsAnd if you had bought into an airline, you’d have seen plenty of that. Even the best of them are struggling with a collapse in passenger demand not seen for decades.

 

But shareholders in Irish national carrier Aer Lingus have more reason than most to be upset. This week its shares slumped by more than 35 percent after a profit warning investors did not see coming.

 

The news that the struggling airline will fail to make a pretax profit in 2009 contradicted claims made just two and a half months ago when it was defending a takeover approach from hated rival Ryanair.

 

Ryanair offered Aer Lingus shareholders 1.40 euros a share. The shares sit at less than half that now at 0.57 cents, with dismal near term prospects. Even the Aer Lingus choice asset, its cash, is being burned rapidly. It is expected to fall to around 400 million euros this year from 650 million at the end of 2008.

 

Ryanair, itself a near 30 percent shareholder, is furious. It plans to complain to everybody in the land about what it calls a “misleading” Aer Lingus defence, which analysts say in hindsight looked optimistic.

 

Another significant Aer Lingus shareholder — the Irish government — rejected the 1.40 euro offer and is now keeping a low profile. Taxpayers will just have to lump it.

 

Other investors must now decide what action to take. They include a string of well-known funds, including Standard Life Investments and M&G and hedge fund firm Odey Asset Management.

 

Ryanair CEO Michael O’Leary is asking whether Aer Lingus put its desperation to thwart the bid ahead of shareholder value. If other shareholders agree, they may well kick up a major fuss.

 

That is unless they shorted the stock.

 

 

 

Comments

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