A Potential Acquisition of Norwegian Air Shuttle by Ryanair

Øystein Flisnes Husby & Mats Sjølie Gabrielsen

Student thesis: Master thesis


The objective of this thesis has been to obtain a stand-alone value of Norwegian Air Shuttles equity as of 04.03.2016, and the fair price per share in a potential acquisition by Ryanair. This is done by estimating the stand-alone value of equity of Norwegian Air Shuttle and the value of the potential synergies. Both companies are leading European low-cost carriers with strong historical growth, with Ryanair being the largest, carrying over 90 million passengers in 2015. Norwegian Air Shuttle is the third largest low-cost carrier in Europe, carrying over 25 million passengers in 2015. The external analysis is conducted to obtain key value drivers and analyze the competitive environment in the industry, based on well-known strategical frameworks. The most prominent value drivers are found to be economic growth, oil price and the world’s middle-class through a PESTEL-analysis. Rivalry in the airline industry is identified as intense, with a high threat of new entrants. At the same time, the P5F-framework discover differences in intensity in the different market segments. Norwegian Air Shuttle entered the historically profitable long-haul segment, as the only European low-cost carrier in 2013. To be able to analyze Norwegian Air Shuttle on a stand-alone basis and assess the strategical fit between the two companies bearing in mind a potential acquisition, internal analyses are conducted. The key factors analyzed are industry measures, profitability and liquidity. When analyzing Norwegian Air Shuttle on a stand-alone basis, theoretical enterprise value is estimated to be 33 702 NOKm, based on a cost of capital equal to 6.08 percent. This suggests a stand-alone value of equity of 14 919 NOKm corresponding to a share price of 417.21 as of 04.03.16. Total value of synergies is estimated to 6 046 NOKm, based on a cost of capital equal to 6.35 percent and estimated cost of implementation equal to 10 953 NOKm. Maximum price to pay per share by Ryanair is found to be 586.29 NOK. However, this is not a fair price since 52.6 percent of total synergies are found to be attributable to Norwegian Air Shuttle. A fair price of Norwegian Air Shuttles equity per 04.03.2015 for Ryanair to pay in a potential acquisition is as a result estimated to 18 099 NOKm, corresponding to a price per share equal to 506.13 NOK.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2016
Number of pages154