International Airlines Group has agreed to purchase the Irish government held stake of flag-carrier Aer Lingus for approximately €1.4 billion.

Existing Aer Lingus shareholders will receive €2.55 in cash for each Share, comprising a cash payment of €2.50 per share and a cash dividend of €0.05 per share.

The terms of the transaction represent a premium of approximately 40 per cent on the closing price of €1.82 per Aer Lingus Share on December 17th 2014, the last dealing day prior to the first IAG offer.

Commenting on the deal, Willie Walsh, chief executive of IAG said: “Aer Lingus, Ireland and IAG would all benefit from this deal.

“Aer Lingus would maintain control of its brand and operation while gaining strength as part of a profitable and sustainable airline group in an industry that’s consolidating.

“Ireland’s vital air links to Europe and North America would be enhanced, creating new jobs, with cast-iron guarantees on ownership of Aer Lingus’ Heathrow slots and their use on flights to Dublin, Cork and Shannon.

“Acquiring Aer Lingus would add a fourth competitive, cost effective airline to IAG, enabling us to develop our network using Dublin as a hub between the UK, continental Europe and North America, generating additional financial value for our shareholders.”

IAG already controls British Airways, Iberia and low-cost carrier Vueling.

As part of the deal IAG has agreed to binding commitments to allow Aer Lingus to operate its current daily winter and summer scheduled frequencies between London Heathrow and Dublin, Cork and Shannon for at least seven years post-acquisition.

Colm Barrington, chairman of Aer Lingus said: “This is a compelling transaction for Aer Lingus, its shareholders, its employees, its customers and for Ireland.

“Shareholders will realise an attractive return through the premium that the IAG offer provides over the level of our share price immediately prior to the announcement of IAG’s offer.

“The company will reap the commercial and strategic benefits of being part of the much larger and globally diverse IAG Group and as a member of the oneworld alliance.

“This access to greater global scale will accelerate growth across our network, enhance Ireland’s position as a natural gateway connecting Europe and North America, give Irish tourism access to major traffic flows and customer loyalty programmes and provide better access for business interests and to cargo flows.”

IAG is one of the world’s largest airline groups, with a combined fleet size of 459 aircraft, transporting over 77 million passengers and 897,000 tonnes of cargo in 2014.

Ryanair chief executive Michael O’Leary earlier said his carrier, which owned a 29.8 per cent stake in Aer Lingus, would consider any offer on its merits.