No frills airline Ryanair yesterday withdrew its ambitious bid to take over Ireland's national carrier Aer Lingus after the European Commission announced an "in-depth investigation" into its plans.
Following the announcement Ryanair said the buyout automatically lapsed under takeover rules – but the company still intends to make a further offer for Aer Lingus if the EC review clears the way.
Dublin-based Ryanair launched its #1 billion bid in October – a takeover offer which Aer Lingus asked shareholders to reject.
Aer Lingus complained the Ryanair plan was "anti-competitive" – and now the EU’s Competition Commissioner Neelie Kroes has decided on a full inquiry.
A statement issued by the commission in Brussels said: "The commission’s initial market investigation indicates that the proposed acquisition would raise serious competition concerns in the passenger air transport sector and in particular could reduce choice for consumers and could give rise to higher fares than would be likely if the two carriers remained separate."
The commission now has some 90 working days – until May 11 next year – to reach a decision on whether to approve the merger or to declare it in breach of EU rules on fair competition.
Ryanair responded that the bid had now lapsed and all acceptances of the offer received to date were now void.
But it said that if the EC cleared the way for the proposed takeover in future it would make a further offer.
Ryanair chief executive Michael O’Leary said he was disappointed with "the delay in the European Commission’s approval of Ryanair’s offer for Aer Lingus".
He said: "This longer time period will, we believe, allow the Commission to fully market test both the transaction and the revised remedies, which Ryanair will propose.
"Ryanair remains confident that its offer for Aer Lingus – which is consistent with the Competition Commission’s stated policy on airline consolidation – will win EU competition approval under the Phase II procedure."
Mr O'Leary also pointed out that the Commission had approved the merger deal between Air France and KLM.
"The commission appears to apply different and totally inconsistent principles to the Ryanair-Aer Lingus deal than it applied to the much larger Air France-KLM deal, which was waved through with little difficulty," he added.
The statement from the Commission emphasised that the decision to open an in-depth inquiry did not prejudge the final result of the investigation.
Low-cost carrier Ryanair operates scheduled air services across 24 European countries, with Dublin as one of its airport bases.
Aer Lingus recently introduced what the Commission called "features of a low-cost, low-fares airline model, while retaining some elements of the traditional airline model".
Aer Lingus services connect the Irish airports of Dublin, Shannon and Cork with some European and several non-European destinations.
The proposed takeover, bringing together the two main airlines operating out of Ireland, would lead to "important overlaps on a large number of European routes" said the Commission. On many of those routes, the two Irish carriers are the only two competitors. Both Aer Lingus and Ryanair operate services from Birmingham to Dublin.
"The Commission’s initial investigation has found that the two carriers are each other’s closest competitors for services out of Ireland and that barriers to entry are high.
"The proposed merger could lead to the elimination of actual and potential competition between the two carriers on a large number of routes out of Ireland as well as eliminate current base competition at Dublin airport."
Last month Ryanair put forward a new package of proposals to answer the Commission’s concerns about fair competition.