Mergers and Acquisition

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Mergers and AcquisitionCase Study on “Jet Airways and Sahara Airlines Acquisition” : 

Mergers and AcquisitionCase Study on “Jet Airways and Sahara Airlines Acquisition” Presented By Swapnil S. Ghag Manoj K. Karne Sushant Rao Swapnil Redekar

Highlights : 

Highlights JET-SAHARA ACQUISITION DEAL VALUATION WHO IS THE REAL WINNER? POST-MERGER SCENARIO

Introduction : 

Introduction JET AIRWAYS Owned by Billionaire Mr. Naresh Goel Started Commercial Airline Operation in the year 1993 Second Largest Airline after Air India Fleet consists of 92 Aircrafts (as on June 2010) Major Indian Airline based in Mumbai SAHARA AIRLINES Started Operations on 3rd Dec 1993 On 22 March 2004 it became an international carrier with the start of flights from Chennai to Colombo It is part of the major Sahara India Parivar Conglomerate business conglomerate On 2nd Oct it was Rebranded as Air Sahara

No Deal : 

No Deal On 19 Jan 2006 - Jet announced to buy Air Sahara for US$ 500 ( approx 2500 Crore) Mixed Market Reaction – Deal Overvalued On June 2006 – Deal Failed Jet Defended by saying – All Clearances were not available on time from the Govenrment Civil Aviation Minister defends by saying – “There is a broad policy on mergers and acquisitions and it cannot be made to suit a particular airline. The government was ready on time with the procedures. If any party is aggrieved, it can come to the government for clarification” Companies File Law Suit against each other Escrow Account with ICICI bank got sealed Finally – NO DEAL

JET-SAHARA AQUISITION DEAL : 

JET-SAHARA AQUISITION DEAL Exit from Airline Business – Sahara Parivars Plan Health of Sahara - 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 On 12 June 2006 – Jet agreed to buy out Sahara for Rs, 1450 crore on the heels of announcement of Air India – Indian Airlines Merger Offer was reduced to Rs 1450 crore (Only Equity Component) as at Rs 2500 crore previously (by approx 40%) Air Sahara was renamed JetLite, and was marketed between a low-cost carrier and a full service airline In August 2008 Jet Airways announced its plans to completely integrate JetLite into Jet Airways. All Shares of Air Sahara to be transferred to Jet Airlines Money was paid in 4 Installments

JET-SAHARA AQUISITION DEAL : 

JET-SAHARA AQUISITION DEAL Pallabh Agrawal ,Executive Director and Lawyer Jeffrey Thomas represented Sahara and Harish Salve and Saroj Dutta and Chairman Naresh Goel represented Jet Airways The deal was signed after the panel comprising British judge Lord Stein and Supreme Court Justices S.P. Bharucha and Jeevan Reddy Speculation made – Post Merger – Domestic Market Share – 35% Employees taken into confidence Jet acquired Saharas flying rights ,parking slots and 10 Boeing 737 Aircrafts Arbitration Panel Judgement Jet Airlines succumbed to Sahara Airlines Turbulent Times of Aviation Sector Competetiors Role Critics

Valuation of Jet and Air Sahara Deal : 

Valuation of Jet and Air Sahara Deal

Deal Payment : 

Deal Payment

Method of Valuation : 

Method of Valuation On the basis of EBITDAR (earnings before interest, tax, depreciation, amortisation and aircraft rentals) Deducted the capitalized lease rental of Rs 2,000 crore Added spare assets

Reasons for high valuations : 

Reasons for high valuations Operational Synergies Increase market share Fleet expansion

Who is the real winner of jet-air Sahara : 

Who is the real winner of jet-air Sahara Aviation sector call for A fresh look at the benefits

Jet Airways & Air Sahara : 

Jet Airways & Air Sahara Lower valuation -Jet airways is shelling out Rs 1,450 crore -It represents a hefty 34 per cent discount to the original acquisition price of Rs 2,217 crore Questions that remain -The Liabilities Of Air Sahara Were Not To Be Transferred To Jet Airways -To Have Infused Some Cash Into Air Sahara To Meet Its Operational Expenses -To Have Allowed Air Sahara To Retain A Portion Of Its Assets -Air Sahara's Assets

Con…. : 

Con…. Net asset value -Net value of the assets now handed over to jet airways is about Rs 200 crore -Rs 400 crore of losses that air sahara suffered during june-march State of assets -Air Sahara are in a good condition could put additional financial burden on Jet Airways -Jet Airways will acquire Air Sahara on an as-is-where-is basis

Winning Point For Jet Airways : 

Winning Point For Jet Airways Financial Synergies

SAHARA : 

SAHARA

Impact Of The Merger And Acquisition : 

Impact Of The Merger And Acquisition On workers or employees: Lay offs: Salary concerns: Seniority:

Cont… : 

Cont… Management at the top: Clash of the egos: Different culture: On Shareholders: there are two types of shareholders, Shareholders of the acquiring company: Shareholders of the targeted firm:

EXAMPLE : 

EXAMPLE Air India Indian Vs Jet-jetlite Now in the throes of mega-mergers – Air-India with Indian and Jet Airways with Air Sahara – that ambition is likely to put them on a collision course.

How They Compare : 

How They Compare Air India- Indian Flight daily by 2008 is 450 Fleet by 2009 is 120 Turnover by 2009 is $4billion Employees:33500 (approx) Destination by 2009 is 65 Jet-Jetlite Flight daily by 2008 is 450 Fleet by 2009 is 120 Turnover by 2009 is $2.5billion Employees:12000 (approx) Destination by 2009 is 65

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