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Originally published August 29, 2012 at 6:05 AM | Page modified August 29, 2012 at 6:35 AM

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EU probes Ryanair's bid to take over Aer Lingus

The European Commission decided Wednesday to launch an in-depth investigation into whether Irish airline Ryanair's proposed takeover of rival Aer Lingus would hinder competition, a spokesman said.

Associated Press

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BRUSSELS —

The European Commission decided Wednesday to launch an in-depth investigation into whether Irish airline Ryanair's proposed takeover of rival Aer Lingus would hinder competition, a spokesman said.

The Commission must decide by Jan. 14 whether or not to block the proposed deal, said Simon O'Connor, a spokesman for the Commission, which is the executive branch of the European Union.

"The Commission's preliminary investigation into the proposed takeover indicated potential competition concerns," O'Connor said.

He noted that Ryan Air and Aer Lingus are the main airlines operating out of Dublin, and there are many routes between Dublin and other European cities that are served only by those two airlines.

However, he said the Commission's decision to begin a full investigation did not prejudge its conclusions.

Ryanair, the low-cost Irish airline, has made a bid for Aer Lingus valuing the airline at about (EURO)700 million ($878.36 million). Aer Lingus has written to shareholders urging them to reject the bid.

Ryanair issued a statement Wednesday saying only that its offer lapsed following the Commission's decision, in accordance with takeover rules. But it said it intended to re-bid for Aer Lingus if the Commission cleared the way for the merger.

Aer Lingus issued a statement supporting the Commission's decision, noting that Ryanair's first attempt to take over Aer Lingus was prohibited in 2007 on competition grounds. Ryanair abandoned its second bid in 2008 after too few shareholders took up the offer.

"Aer Lingus is a much stronger airline today than it was at the time of the previous Ryanair offers and is Ryanair's only significant competitor on the vast majority of Irish air routes," the Aer Lingus statement said. "The number of routes into and out of Ireland on which Aer Lingus and Ryanair compete has sharply increased since 2007. The reasons for prohibition are therefore even stronger than before."

In June, Ryanair offered (EURO)1.30 ($1.65) per share for its main Irish rival, its third bid since Aer Lingus' 2006 flotation. Ryanair is already Aer Lingus' biggest shareholder with a nearly 30 percent stake, the government second with 25 percent.

Air Lingus says that even Ryanair's minority shareholding is "contrary to the interests of consumers and the majority of our shareholders."

Aer Lingus has struggled in recent years to slash costs sufficiently to compete with Ryanair, which is Europe's fastest-growing airline. It has suffered regular battles with labor unions, whereas Ryanair doesn't recognize them. But it did post a modest profit last year and has been expanding its own European short-haul network.

Ryanair chief executive Michael O'Leary argues that the government must sell Aer Lingus because it needs the cash, and would be far better off selling to another Irish company. The other potential suitor, Etihad Airways of the United Arab Emirates, this year bought a 3 percent stake in Aer Lingus and has expressed interest in the government holding.

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Pogatchnik reported from Dublin. Don Melvin can be reached at http://twitter.com/Don-Melvin.

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