DealZone

Lufthansa flies into Ryanair’s sights

June 3, 2009

You’ve got to admit that when Ryanair’s chief executive Michael O’Leary (left) told journalists in London on Tuesday that the low-cost airliner was studying a bid to buy Germany’s flag carrier Lufthansa, he must have meant it as a joke.

For Ryanair to acquire Lufthansa is a bit like taking ice to the North Pole: a bit far-fetched now, but certainly plausible in the near future. “We are having a serious look at Lufthansa. We could almost buy it for cash,” O’Leary confidently told the media.

But he also qualified those comments with his usual effusive charm, saying: “We are not planning any bids for Lufthansa in the foreseeable future, but it is the only one of the other three large airlines that we would be interested in.”  That rules out British Airways, which is still in merger talks with Iberia. O’Leary doesn’t want the hassle of its pension fund. It also excludes Air France-KLM, the world’s largest airliner by revenues.

Despite Ryanair’s market capitalisation being almost as big as those two other carriers combined, it is nevertheless Lufthansa’s cheap market price that O’Leary says attracts him.

But even he has tacitly admitted that he has missed the most opportune moment to make a bid approach.
While Lufthansa’s shares have taken a bashing during the current economic downturn, they are already on their way back up, in line with the DAX-30. In March, Lufthansa’s shares hit a low point of €7.90. Now, they are hovering around €10. Nevertheless, with Ryanair’s market cap at €5.4 billion and Lufthansa’s at €4.7 billion, a paper merger is still plausible, with Ryanair taking majority control, but only if Lufthansa’s shareholders and the German state were to give their approval.

However, a cash deal looks unlikely, after Ryanair reported its full-year results today. Its net debt increased by 25 percent to €120 million and it made a net loss of €169.2 million compared with €390.7 million last year, mainly thanks to a €222.5 million write-down on its 29.8 percent stake in Aer Lingus. That raises the other question: How can Ryanair even contemplate taking over Lufthansa when it has tried twice and failed to acquire Ireland’s national carrier?

Comments
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I strongly doubt this will ever happen, running a full service airline is not the same as running a no frills budget one. Mr O’Leary also seems to forget that Lufthansa is a national icon to the Germans that has to stay German at any cost. I must admit that Mr O’Leary is a talented marketeer, he always knows when and where to stir things up and how to make publicity for his airline.

 

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