IAG share price up, nears Aer Lingus acquisition as Ryanair agrees to sell stake

British Airways-parent International Airlines Group SA is one step closer to taking over Irish national carrier Aer Lingus after the board of Ryanair Holdings Plc unanimously voted in favor of selling its nearly 30% stake in the carrier.

The London-based airline operator, which owns British Airways, Iberia and Spanish budget carrier Vueling, had made the acquisition of Aer Lingus contingent on the agreement of Ryanair, Europes biggest budget airline by passenger numbers, after the Irish government agreed in May to sell its 25.1% stake in the carrier.

Ryanair, which had previously tried to acquire Aer Lingus on three occasions but failed to win approval by competition authorities, said it believed IAGs offer for Aer Lingus was reasonable and in the best interests of Ryanair shareholders, and that it would make a small profit on its investment.

With the offer valuing the Irish carrier at €1.36 billion, Ryanairs 29.8% stake in Aer Lingus would generate about €400 million. Ryanair, which had fully written down the value of its Aer Lingus stake, did not outline how it plans to spend the proceeds, but analysts expect the cash to be returned to shareholders.

Ryanair chief executive Michael O’Leary said that Ryanair no longer needed Aer Lingus. “Our original strategy for Aer Lingus (to use it as a mid-priced brand to offer competition to flag carriers at primary airports) has been overtaken by the successful rollout – since Sept 2013 – of Ryanair’s “Always Getting Better” strategy, which has seen the Ryanair brand successfully enter many of Europe’s primary airports, being rewarded with strong growth in our network, traffic, load factor and profitability, while keeping our fares low and our punctuality high.”

Meanwhile, adding the Irish carrier to its portfolio would present new growth opportunities for IAG, allowing it to expand its lucrative transatlantic routes by using the Dublin Airport, whereas its biggest division British Airways cant do that at its main hub, Londons Heathrow, because the airport is full.

The deal is now pending approval from the European Commission competition authorities, with rulings on July 15th expected to be in favor of the transaction, while Air Lingus shareholders will hold an extraordinary meeting on July 16th to vote on the IAG offer.

Shares in all three airlines rose on Friday following the news. Ryanair Holdings traded 1.97% higher at €12.42 per share at 14:17 GMT on the Irish Stock Exchange, while Aer Lingus Group Plc was up 2.27% at €2.48 per share.

International Consolidated Airlines Group SA rose 2.4% to GBX 526.87 per share in London, marking a year-over-year jump of 58.84%. The company is valued at 10.42 billion pounds.