Esot says rival offer may hit payback of debts

The staff shareholding group at Aer Lingus has warned its members that accepting Ryanair's €1.4 billion offer for the airline could jeopardise the group's ability to repay debt of €35 million it incurred in order to purchase shares in Aer Lingus.

The board of the Employee Share Ownership Trust (Esot) said it had concerns as to how the profits of Aer Lingus would be reported if Ryanair was to acquire the company and how the Esot's entitlement to a share of those profits would be calculated.

The Esot, which has begun balloting its members on the Ryanair bid, was intending to use a new profit share agreement with Aer Lingus to repay borrowing costs of around €35 million that it incurred to purchase 15.5 million shares at €2.20 each from the Government under an option agreement entered into before the initial public offer.

The Esot board said the Ryanair offer document was "silent" on the new profit share agreement. "There is no guarantee that the profit share figures into the future would satisfy the bank regarding security of debt and capital repayment," the Esot board says in its letter to members.

On Friday, ballot papers were sent to the 4,665 members of the Esot, which now holds a crucial shareholding of approximately 12 per cent. Copies of the Ryanair offer document will be sent to members early next week.

Completed ballot papers must be returned to PricewaterhouseCoopers by noon on November 22nd. It is expected that the Esot members will overwhelmingly vote to reject Ryanair's cash offer of €2.80 per Aer Lingus share.

Although the Esot board has not directly recommended or rejected the Ryanair offer, it does question the financial claims made by Ryanair. Statements by Ryanair chief executive Michael O'Leary that the offer is worth €60,000 to Esot members are inaccurate, it says.

Based on the offer price of €2.80 per share, the average proceeds before tax but after the repayment of the €35 million borrowing costs would be €38,864 on average for employee members and €13,915 on average for ex- employee Esot members, it claims.

Last month Mr O'Leary responded to the Esot's initial questioning of the calculations in the offer document by arguing that the Esot had made an "unexplained" deduction of more than €6 million to arrive at its figure.

Aer Lingus itself has placed the value of the offer at just €32,500 per Esot member and described Ryanair's claim that Esot members would be able to receive entitlements on a tax-free basis, as "highly conditional" and "dependent on Revenue approval".

Esot members would have to reinvest the proceeds of the offer in Ryanair shares in order to avoid penal tax consequences.

The Esot board's letter notes that the offer document does not comment on the Esot's entitlement to representation on the board of Aer Lingus. Under terms agreed with the Government and the company, the Esot is entitled to appoint two directors to the Aer Lingus board as long as it holds 5 per cent of the shares and one director as long as it holds one per cent.

The Esot board also said members should note that the Aer Lingus share price had risen quickly since the initial days of trading. It implied this made Ryanair's offer less attractive.

Another staff group at Aer Lingus, the Central Representative Council, issued its document on Friday in which it accused Ryanair of making "misleading comments".