Jet Airways makes second offer for Air Sahara

In an uncharted move in India, Jet Airways agrees to proceed with the acquisition of Sahara Airlines for $340 million, 32% less than the price agreed in Jaunary 2006.
Jet Airways made a Bombay Stock Exchange filing on April 12 stating that it will pay Rs14.5 billion ($340 million) for 100% of Sahara Airlines.

Jet has already paid Rs5 billion, will pay Rs4 billion by April 20 and the balance Rs5.5 billion in four interest-free equal, annual instalments commencing on or before March 30, 2008. Jet Airways said ôat the current interest rate the net present value (NPV) of the lump sum price is Rs12 billionö.

Sources close to the deal say Air Sahara has been valued at Rs20.5 billion, of which Rs6 billion has been adjusted against arrears, interest and other liabilities. Thus, the net payable to Sahara is Rs14.5 billion. Exact details have not been disclosed as the two parties have signed a non-disclosure agreement with respect to certain elements of the share purchase agreement.

Jet Airways originally offered to buy Sahara Airlines last year for a price of $500 million. This means the new offer of $340 million is 32% lower than the first bid. At the NPV Jet has calculated, it has brought the price down around 44%.

Jet Airways entered a share purchase agreement with Sahara Airlines on January 18 last year. At the time, Jet was to pay $500 million in the biggest deal in Indian aviation history, which would create the country's largest domestic airline. JetÆs most recent available market share at that time was around 40% and that of Sahara around 11%.

By April of the same year, both airlines had lost market share to aggressive new entrants such as Air Deccan and Kingfisher. JetÆs market share was down to 35% and SaharaÆs to around 8.5%.

Shortly after, in June, the deal collapsed. Jet said it could not close the deal due to non-receipt of necessary regulatory approvals.

Sahara followed suit by filing a case against Jet, seeking to retain monies placed in escrow and seeking further financial damages. The deal signed yesterday was a result of arbitration between the parties since July 2006.

Onlookers are divided on the merits of the deal. Aviation specialists have commented the deal could prove costly for Jet, even at the significantly reduced price, when it is still not back in the black and is also investing aggressively to expand its international operations. Its current market share of the domestic market is down further to around 25%, though the entire market has grown making it not strictly comparable to earlier numbers.

However, others say Jet had no way out. It risked forfeiting the money it placed in escrow and was expending valuable management time and resources in fighting what seemed to be a losing battle not to proceed with the merger.

Jet Airways shareholders turned bearish on the share on April 11 hammering it 6% from Rs645 to Rs609 as news filtered into the market that the merger had been revived. However, the financial details seemed to cheer them on April 12 as the share ended the day up 3% at Rs628.

It is still a long way off the high of Rs1059 the Jet scrip saw exactly a year ago on April 12, 2006. But shareholders are obviously relieved that management will once again start focusing its energies on running and growing the private sector carrier, which pioneered the concepts of timely and efficient airline service in the country.
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