m & a valuation_jet sahara

8/8/2019 M & a Valuation_Jet Sahara

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Jet Sahara Deal

Rationale/Synergies:The buyout will make the merged entity the largest domestic

private carrier, with a market share of about 42 per cent and a

fleet of 88 aircraft, including the 27 operated by Air Sahara.

The combined Jet-Sahara entity became the only private airlines

with the permission to fly overseas.

Low costs though economies of scale is expected to augment Jet's

ability to compete on price in the highly price sensitive domestic

aviation market.

Details of the deal:

Deal announced on: January 2006 INR2300 crore

Deal value: INR1450crore

Deal completed on: 21st April 2007

"A. The agreement has been executed for an all inclusive enterprise

value of around 500 million dollars for Sahara.

"B. The transaction is for an all-cash consideration.

"C. Pending confirmation of regulatory approvals, both the airlines

will continue to operate independently.

"D. Sahara India confirms that workers shall not lose their jobs and

cadres and gross emoluments will be unaffected. Upon closure ofthe transaction, based on requirements and performance, Jet

Airways shall absorb suitable employees."

Air Sahara was healthier than many other companies. It was sitting

on more than Rs 500 crore of promoter funding, including equity of

Rs 236 crore, preferential shares of Rs 50 crore, and group loans of

Rs 250 crore. Most other promoters put in about Rs 40-50 crore.


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Why the deal fell through initially?

The policy related to mergers and acquisition in the aircraft

industry did not clearly specify the terms of transfer for

airport infrastructure. The guidelines though clear on parking

bays and landing slots, did not specify the status of aircraft hangars,

check-in counters, cargo warehouses, passenger lounges and other

such airport facilities.

Also,Jet Airways enthusiastically overvalued Air Sahara, and

later wanted a discount on the original price (20 to 25

percent). This is typically a case of overvaluing a company whose

business model was not robust.

Did the deal lead to a monopolistic situation?

Although the scale of the combined airlines currently puts Jet in a more

advantageous position to drive the market economies, the situation is far

from being monopolistic.

With the passenger traffic growth projected at 40 per cent, there

continues to be a gap in the available seat capacity.

One also needs to consider the might of the merged nationalcarriers, which account for the other one-third share of the domestic

aviation market and would provide direct competition to the merged

Jet Airways.


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Legal/Procedural tangles:

A government policy issued in April 2006 provided that only flying time

slots and parking rights were transferable in case an airline was bought

over.

It means that Sahara's maintenance facilities space, commercial spaces at

airports such as airport counters and lounges belonging to AAI or GMR and

GVK group in Delhi and Mumbai airports would not get transferred

automatically to Jet by virtue of merger.

Jet will have to negotiate with all of these airport operators for these

facilities.

Further, in view of the huge ongoing capital expenditure by these airport

operators and available flexibility to charge for commercial spaces, Jetmay have to pay more than Sahara for these commercial spaces.

m & a valuation_jet sahara

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