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1. Financial Analysis Sample
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Financial Analysis

2. FINANCIAL ANALYSIS
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Financial Analysis
A share is an amount of money one deposit into a corporation in order to entitle that
person's ownership rights. Price per share is therefore the amount of money a shareholder would
pay for a unit share. In the current world, business has taken another dimension. If company
realizes that its performance is dwindling, it invites other companies to bid on its shares so that in

3. FINANCIAL ANALYSIS
can surrender its operations to the highest bidder. To the highest bidder, this is a strategic move
since it will acquire all the assets belonging to that company including workforce and customers.
This paper will therefore discuss the appropriate price per share bid that Air Europe should place
on Aer Lingus and the reasons why it is appropriate to do place such a bid. But before discussing
the appropriate price per share (PPS) that Air Europe should make to Aer Lingus, it is good have
a look at the background information related to Aer Lingus and Air Europe.
On the Irish and London stock exchange, Aer Lingus is among the airlines that is listed
under the ticker EIL1 and AERL listings respectively. According to this listing, its current price
per share is €2.34. It is important to note that in most cases, most companies find it difficult to
sell their shares while in the market, buyers may find it hard to buy shares from other companies.
This is because shares are high-risk investments whose past performance cannot be used as a
base to determine their future performance. Their prices are subject to fluctuation. As a result,
companies are urged to seek professional assistance should it make the decision of making such
an investment.
Air Europe is a Spain airline, owned by a travel and tourism company (Globalia).
Currently, the company has a total of 51 in-service aircrafts having placed an order for 42 more
aircrafts. It is also planning to expand its network and destination to Madrid and Latin America.
Following the harsh economic circumstances in Spain, the airlines are, however facing hard
times as far as its management and expansion is concerned. In order to reduce their high
operating cost, the company is planning to engage on a restructuring plan that aims at reducing
pilots’ salary by 30%. Though this may sound a good move to them, it is highly unacceptable
and that is the reason why it should think of placing a price per share to Aer Lingus.

4. FINANCIAL ANALYSIS
Reports indicate that there exists stiff competition by other airliners to take over the
operations and management of this Irish airline. Ryanair for instance, has tried taking over.
However, Aer Lingus has considered Ryanair price per share of €2.40, too little as it only values
the company at €1.1 billion. The International Airline Group consisting of British Airways,
Iberia and Vueling, has also ventured into this field and want to take over Aer Lingus. The report
indicates that Aer Lingus is in the process of accepting the IAG bid of €2.55 price per share
(RTE. IE 2015). This deal is meant to value Aer Lingus at approximately €1.4 billion.
Statistically and according to the listings of Irish and London stock exchange, the
government of Irish owns 25% shares of Aer Lingus valued at €1.34 billion, Ryanair 30% valued
at €1.6 billion while the rest is owned by another investor including workers who own around
€50000 worth of shares. Totally, Aer Lingus is valued at a 534040090 worth of shares. Out of
the above listed shareholders, Air Europe is not among them. This means that if it has to make a
bid, then it has to high enough to be successful.
Mathematically, price per share
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇
From the information provide above, the highest bidder so far it IAG, with a bid of €2.55 price
per share. This means that the total amount of money IAG is willing to invest in this deal is
𝑇𝑇𝑇𝑇𝑇𝑇 = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇
2.55𝑇534040090
€1.36𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇

5. FINANCIAL ANALYSIS
If Air Europe has to make a bid therefore, it must quote a price per share that is above €2.55
billion (JOE BEN HOYLE 2012). Considering the fact that Air Europe is the third largest flight
in Spain, after Iberia and Vueling, it should make a bid of €2.808 billion.
This bid is appropriate because, it is the highest bid and it is likely to be accepted by Aer
Lingus. According to reports, Aer Lingus turned down Ryanair’s bid because the level of this bid
“fundamentally undervalued” Aer Lingus. In other words, the value of this bid was too low. Air
Europe should therefore offer Aer Lingus a bid that would not “undervalue” the airline.
Additionally, bidding at this price per share value will still enable Air Europe to stand
financially. It would not be incapacitated in case the bid succeeds. Currently, the company’s
revenue from sales is €2.13 billion. If the bid succeeds, it will have to pay Aer Lingus a total sum
of approximately €1.5 billion as calculated below (Chron.com 2015):
𝑇𝑇𝑇𝑇𝑇𝑇 = 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇
2.080𝑇534040090
1499584573≈ 1.5 billion
As seen from the above investment, Air Europe will still have a balance of €0.68 billion (2.13 –
1.5) to run its daily operations. Furthermore, this will be an opportunity for Air Europe to
expand. It is the third largest airline in Europe, it this deal goes through, it may become the
second leading airline in Spain. This is derived from the fact that Aer Lingus has a total fleet of
48 planes while Air Europe has 51. If the bid goes well, Air Europe will have a total of 99 fleets.
Though Iberia will still remain to be the number one flight, owing to its large number of fleets

6. FINANCIAL ANALYSIS
(128), this will be a huge advancement for Air Europe. It will therefore have the capability to
expand its coverage and make more profit.
On the other hand, Ireland, as a nation is looking forward to increase its services and
offer long-haul to destinations like Heathrow. Also, it was also reported that Aer Lingus is would
want to sell its shares to a company that will enable them do long-haul flights. However, the
current conditions of Aer Lingus cannot allow them to offer such services as an airline. They will
therefore accept this deal since, Air Europe, as an airline, has long-haul flights.
Profit-wise, Air Europe won't directly benefit by making a low bid, but they will benefit
from the outcome of the deal. According to reports from BBC News (2015), this new deal
though in the short-run, it may lead to loss of employment, it is expected to create approximately
500 more jobs in the next five years, both for Air Europe and Aer Lingus. This is just a
conservative figure and an approximating, the actual figure quoted by industry analysts is the
creation of around 1000. Additionally, this taking over is also expected to boost tourism sectors.
Some parts are not accessible through the planes. However, if the with acquisition of Aer Lingus
by Air Europe, traffic within the transatlantic will increase, leading to growth of destinations thus
facilitating tourist travel.
Acquisition of Aer Lingus by Air Europe will reduce competition significantly. This is
because once the two airlines merge, they will be working as a single entity under the umbrella
of Air Europa. Though this move may lead to high fare for passengers, it will enable Air Europe
gain high operating margins. Reports also indicate that is planning it increase its frequency of
Madrid and San Juan air routes which were left by Iberia. However, it is undergoing the same
financial challenges that Iberia underwent. As a result, it has to shoulder this responsibility alone.

7. FINANCIAL ANALYSIS
Making this bid therefore will be important to the company because if it wins in purchasing Aer
Lingus, it will have more than enough fleet to cover this Caribbean air route with ease.
Furthermore, the value of this bid, if it wins, is incomparable to Air Europa’s current
plans. According to this website Air Europa to add frequencies on the Puerto Rico route (2015),
it is has already placed an order for a total of 50 jets: 10 Airbuses and 40 Boeings. This is far
much expensive for the firm. A single Boeing B787 cost $200 million, meaning 40 of them will
cost $8000 million (200 x 40). On the other hand, one Airbus cost $115 million, 10 will cost
$1150 million. This gives a total sum of $9150 million ($8000 + $1150). A rough estimation of
this amount is $9.15 billion. Converting this amount into sterling pounds, with the current rate of
1.07, this gives €8.551 billion. If the company was to succeed in the bid, it will only spend €2.08
billion. This means that Air Europa will save €6.471 billion (8.551 - 2.08) besides acquiring 48
Airbuses currently owned by Aer Lingus.
It has been reported in the ReutersUK (2015), that the Irishgovernmentisunwillingtoallow
IAG take overAerLingus.Accordingto the government,thistakingoverwill result ineconomicloss.A
largerpercentage of employeesfromAerLinguswill lose theirjobyetIAGdoesnothave the capacity to
employthem.Additionally,the governmentallegesthatinthe pastfew years,since 2014, AerLingushas
recordedan 18% increase inprofitmarginandtherefore sellingitwouldbe agreat lossto Ireland.In
otherwords,whatthe Irishgovernmentwantsisatakeoverthatwill make more financialsense thanthe
one IAG isoffering.
If Air Europe,therefore placestheir€2.808 bid, theywill be ina positiontoeasilytake overAer
Lingus.Moreover,ithasbeennotedthatAir Lingusisan airline thatiscomingup comparedtoIAG (a
mergerof three airlines).Thismeansthatitas it longstoexpand,itwill needmore workforceonboard.

8. FINANCIAL ANALYSIS
A large percentage,if notall,of workerswhowill lose theirjobs,bythe virtue of the takeover,mayhave
the opportunitytoworkfor AirEurope.Giventhe fact thatthis whatthe Irishgovernmentwants,Air
Europe shouldconsidermakingthisprice-per-sharebid.
It is good to understand that bidding is a game of probabilities and many things may go
wrong. Discussed in the subsequent paragraphs and sentences are some of the key areas to watch
when bidding for another company. One key thing to watch and avoid is early bidding. A
company may be interested in acquiring something and they place a bid as soon as an
opportunity arises. This is not recommended at all. This is because, through bidding, a company
makes its intentions known to the other companies who will then be attracted to the deal. They
will may end up placing higher bids which may eventually win as it happened to Ryanair. They
had placed an earlier bid of €2.20 which was later overtaken by IAG’s bid of €2.55. It is
therefore good to wait until the time has gone to make a bid (Procurementclassroom.com 2015).
This will not only eliminate unnecessary competition, but it may enable the company in question
acquire what they want at a lower bid.
Another key area to watch is the level of the bid. In most cases, initial bid quotations are
very low. This may tempt and investor who really want to acquire something. This is because
they may end up placing a low bid without considering the value of whatever they want to
acquire. It is therefore not advisable to quote a low bid for another company may arise and quote
a high bid for the same leading to a loss.
Furthermore, a company should do a lot of research before attempting to make any bid.
Many are the times companies have acquired something at a high bid yet its value isn’t worth
that much. This usually happens when a company lacks prior information about what they are

9. FINANCIAL ANALYSIS
bidding for. Therefore, prior research should be done so that a proper bid is placed. Even if the
bid is outbid, it won’t have major impacts since it is better to lose something that is less worth
that gain it yet it will never make substantial gains of the company.
Another important thing to watch is escalating bidding. This occurs if the item in
question is too popular. In such a scenario, many bidders will be attracted and the level of
bidding will continue to rise. Since companies really want to acquire the item, they will continue
placing new and higher bids in an attempt to stay ahead of other bidders. The consequences are,
a company may end up acquiring something at a higher price than expected. The
recommendation is to set a maximum amount that a company is able and willing to bid and no
matter what happens, one should stick to this amount even though it calls for loosing. It is better
to lose, for this is normal in bidding environments, than pay too much for a bid.
References
02B, (2015). Air Europa to add frequencies on the Puerto Rico route. [Online] Available at:
http://www.02b.com/en/notices/2014/01/air_europa_to_add_frequencies_on_the_puerto_rico_ro
ute_6411.php [Accessed 10 Apr. 2015].
BBC News, (2015). Aer Lingus 'to accept' bid from British Airways owner IAG. [Online]
Available at: http://www.bbc.com/news/business-30967346 [Accessed 10 Apr. 2015].
JOE BEN HOYLE, T. (2012). Fundamentals of advanced accounting. [S.l.]: McGraw hill higher
educat.
Procurementclassroom.com, (2015). The Bid Security and Its Purpose. [online] Available at:
http://www.procurementclassroom.com/the-bid-security-and-its-purpose/ [Accessed 10 Apr.
2015].
RTE.ie, (2015). Aer Lingus board set to recommend IAG takeover bid. [online] Available at:
http://www.rte.ie/news/2015/0126/675584-aer-lingus/ [Accessed 9 Apr. 2015].

10. FINANCIAL ANALYSIS
Small Business - Chron.com, (2015). How to Calculate Market Price Per Share of Common
Stock. [online] Available at: http://smallbusiness.chron.com/calculate-market-price-per-share-
common-stock-3396.html [Accessed 9 Apr. 2015].
ReutersUK,(2015). Aer LinguspressesIrish governmenton IAGtakeover.[online]Available at:
http://uk.reuters.com/article/2015/02/24/uk-aerlingus-results-idUKKBN0LS0IP20150224 [Accessed10
Apr.2015].
Finance - Zacks, (2015). Why Do StockPrices IncreaseAftera Takeover?.[online] Availableat:
http://finance.zacks.com/stock-prices-increase-after-takeover-6973.html [Accessed10Apr.2015].