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DUBLIN, Ireland (AP) -- Ryanair Holdings PLC, Europe's largest discount airline, launched a surprise bid Thursday for Irish rival Aer Lingus Group PLC, an offer the chairman of the formerly state-owned carrier bluntly rejected.
Ryanair Chief Executive Michael O'Leary said his company had bought more than 16 percent of Aer Lingus over the past week and wanted to buy the rest at 2.80 euros ($3.55) a share, a 27 percent premium over Aer Lingus' Sept. 27 IPO price of 2.20 euros ($2.79) a share. Ryanair's price would value Aer Lingus at 1.48 billion euros ($1.88 billion).
But Aer Lingus Chairman John Sharman announced that the company's board had unanimously rejected Ryanair's takeover attempt as hostile and unwelcome.
"This approach is unsolicited, wholly opportunistic and significantly undervalues the group's businesses and attractive long-term growth potential," Sharman said in a statement. "In addition, the offer would raise significant regulatory issues as a result of Aer Lingus Group's strong position in its core markets."
Aer Lingus shares soared 16.3 percent to close at 2.90 euros ($3.68) on the Irish Stock Exchange. Ryanair shares gave up earlier gains after Sharman's announcement to close at 8.67 euros ($10.88), down 0.3 percent.
Analysts said Ryanair will almost certainly have to raise its offer price to succeed in taking a majority stake, while other potential suitors -- particularly British Airways PLC, whose Chief Executive Willie Walsh previously ran Aer Lingus -- might be tempted to build their own stakes.
O'Leary pledged to keep Aer Lingus running as a separate company and to respect the powerful role of labor unions in the Dublin-based operation -- a pledge lambasted by union leaders.
But the Ryanair chief said his offer, if accepted, would mean more than 220 million euros ($280 million) in profit for an Aer Lingus employee share-ownership trust that controls more than 10 percent of Aer Lingus stock. That would be equal to more than 60,000 euros ($76,000) per worker.
"We believe it's a unique opportunity to put the two leading Irish airlines together into one strong group that would be able to compete with Europe and the world," O'Leary said in an interview. He said the combination would carry more than 50 million passengers annually and, through Aer Lingus' existing trans-Atlantic routes, expand the range and quality of its services to the United States.
O'Leary said he wanted to buy 100 percent of the company if possible and had more than 2 billion euros ($2.6 billion) in cash reserves to make it happen.
He said he had telephoned senior Irish Cabinet ministers to bid for the government's remaining 28 percent stake. But he said acquiring 50.1 percent would be sufficient for Ryanair to forge a new alliance.
Irish Prime Minister Bertie Ahern ruled out a deal, noting his government's longstanding determination to retain an Aer Lingus stake big enough to block decisions considered detrimental to Ireland's economic competitiveness.
Ahern, speaking in Ireland's parliament, said the government was committed to promoting strong competition among airlines and "will not be selling its shares in Aer Lingus."
O'Leary said a Ryanair-controlled Aer Lingus would cut its short-haul fares 10 percent within four years, retain its slots at Heathrow -- the only major London airport Ryanair does not use -- and upgrade Aer Lingus' long-haul fleet serving U.S. routes.
Labor leaders rejected Ryanair's bid, noting Ryanair's refusal to recognize unions and frequent confrontations with an unofficial union that represents Ryanair pilots.
A union that represents Aer Lingus cabin crew, pilots and middle management, IMPACT, said a Ryanair takeover "would create a near-monopoly on passenger air travel in and out of Ireland with obvious adverse implications for passengers and society."
"Ryanair has a well-known history of hostility to its staff and shabby treatment of its customers," IMPACT added in a statement.
The proposed takeover would face regulatory hurdles in both Ireland and the European Union. Ireland's Competition Authority is obliged to open an investigation if Ryanair's stake in Aer Lingus grows beyond 25 percent, but the authority said Thursday it had already begun the work.
O'Leary said he expected the major decision to be taken by European authorities. Clearing that hurdle that shouldn't be a problem, he asserted, citing past EU verdicts permitting mergers that allowed British Airways, Air France and Lufthansa to grow on their home soil.
Aer Lingus came close to bankruptcy in 2002 because of a bloated payroll and lost business following the Sept. 11 terrorist attacks in the United States, traditionally its key profit-making destination. But under Walsh's direction it managed a turnaround by slashing staff and moving to a low-frills model emphasizing European routes -- essentially emulating Ryanair's formula.
Aer Lingus, which in Gaelic means "air fleet," was founded by the government in 1936. The airline connects Ireland to more than 50 European cities; directly to the U.S. cities of Boston, Chicago, Los Angeles and New York; and to the emirate of Dubai
