The board of Irish airline Aer Lingus has recommended a raised 1.36 billion euro ($1.5 billion) takeover offer from the owner of British Airways, which must now soothe Irish government concerns to win approval.
The new offer from International Consolidated Airlines Group (IAG), its third in six weeks, is worth 2.55 euros per share, up from 2.40 euros, and includes a cash offer of 2.50 euros per share and a dividend of 0.05 euros.
Aer Lingus said its recommendation is subject to being satisfied with how IAG proposes to address the interests of relevant parties, including its main shareholders budget airline Ryanair and the Irish state.
The Irish government had sought to sell its 25 percent stake as part of the country's 2010 bailout by the European Union and International Monetary Fund but postponed the plan.
It now faces mounting political pressure not to sell from the two main opposition parties and the airline's trade unions, raising the stakes just over a year before national elections.
IAG said it intends to operate Aer Lingus as a separate business with its own brand, management and operations.
"IAG recognises the importance of direct air services and air route connectivity for investment and tourism in Ireland," IAG said in a statement.
Shares in Aer Lingus were 1.2 percent higher at 2.40 euros at 1400 GMT. IAG rose 2.4 percent to 562 pence in early trade, the highest level since the group was formed four years ago.
"IAG has outlined plans for Aer Lingus which we believe are logical,attractive and will likely alleviate the concerns of the Irish government," said
David Holohan of Merrion Stockbrokers. "Our view is that this news paves the way for the Irish government to support the deal."
Dublin-born IAG Chief Executive Willie Walsh started his career as an Aer Lingus pilot before eventually running the airline, and is also chairman of Ireland's debt agency.
Transport Minister Paschal Donohoe, who briefed cabinet on the offer on Tuesday, has said they will look at how a merger would affect Aer Lingus workers, its brand and both connectivity and competition for air routes out of the island nation.
The airline's main trade unions IMPACT and SIPTU called on the government to block the sale unless job guarantees are secured. IMPACT has said a takeover could lead to the loss of up to 1,200 jobs, close to a third of the workforce.
Any sale would also have to be have approved by parliament. The two-party coalition government has a large majority but a vote could nevertheless put pressure on backbench lawmakers, some of whom want similar job guarantees to be provided.
A successful takeover would give IAG more take-off and landing slots at London Heathrow Airport, BA's home base and a major European hub for international flights.
It said Aer Lingus would join the joint business that IAG operates over the North Atlantic with American Airlines, leveraging traffic flows between Ireland and the United States.
Ryanair, which holds 29.8 percent after its own takeover attempts were blocked and faces a regulatory order to cut its stake to 5 percent, said it would make up its mind on any formal offer once it's had time to consider the price, and whatever proposals IAG makes to "get past" competition regulators.
"You can't address different issues for different shareholders. Maybe they're trying to come up with things designed to satisfy the Irish government. I don't know," Ryanair Chief Executive Michael O'Leary told a news conference in Rome.