BA Owner IAG Tables Fresh Bid For Aer Lingus

The parent company of British Airways (BA) has approached Aer Lingus (Other OTC: AELGF - news) about a fresh takeover bid for the Irish carrier.

Sky News can exclusively reveal that International Consolidated Airlines Group (IAG) submitted a revised proposal to the board of Aer Lingus within the last couple of days.

Sources said that the board of IAG had authorised an improved all-cash offer earlier this week worth at least €2.50 a share, which would value the Dublin-based airline at more than €1.3bn (£971m).

Directors of Aer Lingus discussed the proposal on Friday with their investment banking advisers from Goldman Sachs (NYSE: GS-PB - news) , according to insiders.

The disclosure of the approach by Sky News is likely to trigger stock exchange statements by both companies on Monday.

The fresh overture could be sufficient to persuade Aer Lingus to enter into formal takeover discussions with IAG, although it was unclear this weekend whether there were significant conditions attached to the proposal.

It was also unclear whether IAG might be prepared to raise its offer for a third time if the current proposal is rejected.

IAG's chief executive, Willie Walsh, is a former Aer Lingus pilot who went on to run the airline before taking the helm at BA in 2005.

He has made two previous approaches for the Dublin-based carrier, pitched at €2.30 and €2.40 a share, in the past six weeks.

Both were rebuffed by Aer Lingus on the basis that there were undisclosed conditions attached and that they "fundamentally undervalue[d] Aer Lingus and its attractive prospects".

Mr Walsh's attempt to acquire Aer Lingus is designed to cement its grip on take-off and landing rights at London's Heathrow Airport, while enabling him to improve the Irish carrier's profitability by combining some operations with those of IAG.

Already the largest carrier at Heathrow, a merger of the two companies would create a group with close to half of the available slots there.

A Government commission on aviation capacity led by Sir Howard Davies is due to recommend after the General Election whether Heathrow or Gatwick should be allowed to construct a new runway.

Even (Taiwan OTC: 6436.TWO - news) if Aer Lingus's board is minded to open talks with IAG, Mr Walsh will need to persuade the Irish Government and Ryanair chief executive Michael O'Leary of the bid's merits.

Ryanair owns a 29.8% stake in Aer Lingus and has fought a long-running battle with regulators over both that shareholding and a string of its own bids for its rival dating back to 2006.

Ryanair has been reported to be willing to consider an offer of between €2.50 and €2.70 a share, although the airline insisted on Saturday that this was inaccurate.

The Irish Government holds a 25.1% stake in the airline, and reports have suggested that it could insist that IAG retains Aer Lingus's Heathrow slots solely for flights to and from Ireland (Other OTC: IRLD - news) as a condition for approving a deal.

Analysts have argued that such a pre-condition would make Aer Lingus less attractive to Mr Walsh, who in addition to his IAG role is also chairman of Dublin's state debt management agency.

IAG was created in 2009 from the merger of BA and Iberia, which has been radically restructured by Mr Walsh against initially intense opposition from Spanish labour groups.

Since then, it has also acquired Vueling, another Spanish carrier, struck an alliance with American Airlines (Xetra: A1G.DE - news) and considered several other big takeovers.

IAG shares closed on Friday up 2.1% at 536p, valuing it at almost £11bn, while Aer Lingus shares closed up 0.4% at €2.35, giving it a market capitalisation of €1.25bn.

Aer Lingus is preparing for a transition in its leadership regardless of Mr Walsh's efforts to acquire it.

The airline's chief executive, Christoph Mueller, is leaving in May to run Malaysia Airlines, which is being nationalised following the disasters last year involving flights MH370 and MH17.

IAG, which is being advised by Deutsche Bank (Xetra: 514000 - news) , and Aer Lingus both declined to comment.