* OFT to review Ryanair's Aer Lingus stake
* Ryanair to appeal against OFT review
* Aer Lingus welcomes news of probe
(Adds share prices, further background)
By Sudip Kar-Gupta
LONDON, Jan 4 (Reuters) - Britain's Office of Fair Trading is to probe Ryanair's stake in Irish rival Aer Lingus on competition grounds, more than four years after the budget airline bought the minority holding.
Irish airline Ryanair, which owns 29.8 percent of Aer Lingus, said it would appeal against the OFT's decision on the grounds it came too long after the event. Aer Lingus welcomed the OFT move and said it would cooperate fully with the watchdog.
Ryanair mounted a public takeover for all of Aer Lingus in October 2006, but the European Commission investigated the bid and decided to prohibit it in June 2007.
The OFT said Ryanair's Aer Lingus stake raised potential competition concerns.
It said it had been hindered from launching a probe in 2006-2007 due to the commission's investigation. Any inquiry had then been delayed by appeals relating to the EU's decisions, but the watchdog believed it now had grounds to get back on the case and launch a fresh review.
"We recognise that this case raises important legal and policy issues in relation to whether competition authorities should be able to apply national merger control legislation whilst related appeals are ongoing under the European Commission Merger Regulation," Sheldon Mills, director of mergers at the OFT, said in a statement.
"We believe that an interpretation of the law that could lead to inconsistent outcomes at national and European level risks undermining the coherence of merger control in the EU," Mills said, adding that the OFT believed it was legally "in time" to review the stake.
Ryanair said it would appeal against the OFT's decision, adding that since the watchdog had missed its original chance to review the Aer Lingus deal back in 2007, it now had no legal grounds to launch a fresh investigation.
"Ryanair adamantly maintains that even if the OFT had jurisdiction back in June 2007, it is now legally out of time because it failed to investigate this offer within 4 months of the EU prohibition in June 2007," it said in a statement.
The OFT said it is normally able to refer mergers to the UK Competition Commission within four months of completion or from the time material facts about the merger are made public.
But a section of the 2002 Enterprise Act allows for it to refer deals outside this timetable if a reference could not have been made earlier because of EC merger regulation.
The OFT's statement came after the stock market closed. Ryanair shares ended up 2.5 percent while Aer Lingus shares closed up 1 percent. (Reporting by Sudip Kar-Gupta; editing by Alexander Smith)