Jet sahara merger

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How Naresh Goyal did a Bargain With Air Sahara and bought at 50% discount.

Published in: Economy & Finance

Jet sahara merger

  1. 1. Sidh Vikash Kumar a r th Vai tSan sh Ravi Dixi c hi Mal ho tra L uthra T imsi Prashant Kumar
  2. 2. Important Dates:-•23/01/2006: Jet-Sahara deal: It is all deal started with Rs. 2300cr•13/05/2006: MRTPC tells DG to submit report on Jet-Saharadeal•13/04/2007: Air Sahara in Jet Air fold for Rs 1,450 cr•14/04/2007: Safe landing in the end•17/04/2007: Air Sahara renamed Jetlite•21/04/2007: Jet Airways completes Sahara acquisition
  3. 3. AcuirerTarget
  4. 4. d• Jet Airways had valued Air Sahara at about 500 million dollars (Rs2300crores) initially. However, subsequent negotiations between Jet Airways owner, Mr. Naresh Goyal and the Air Sahara team settled the deal at 450 million dollars (Rs2100crores). The initial valuation of Air-Sahara seemed to be very high, given that the carrier was sitting on Rs 96 lakhs of loss in the just concluded financial year. This feeling among the industry analysts were reflected when the Jet Airways share experienced a sharp decline with the announcement of the deal. Finally deal was closed on 1450 crore.
  5. 5. MOTIVES FOR ACQUISITION• The merger of Jet and Sahara gave Jet Airways access to the entire leased fleet of 27 aircrafts of Air Sahara along with its infrastructure and logistics. It also gave Jet Airways presence in those areas in India where they were not there but Air Sahara was. Air Sahara proved to be complementary to Jet even in the international arena. While Jet was operating on long haul routes such as US and Europe, Air sahara operated to neighboring countries such as Sri Lanka, Nepal and Thailand. Jet had about 62 aircrafts and operated 320 flights to 44 domestic destinations and 6 foreign destinations at the time of the deal.• One major gain for Jet in the deal was that it could gain access to Sahara’s parking slots in London’s Heathrow airport as well as in Delhi and Mumbai. Another factor was that there was a huge shortage of airline pilots. Hence, it could utilize Air Sahara’s pilots. The maintenance facilities of the smaller carrier would also be available within the country.
  6. 6. MOTIVES FOR ACQUISITION CONT..•Since Air Sahara had leased all of its 27 aircrafts, so there wasnot much gain in terms of tangible assets especially since AirSahara was not transferring its real estate and helicopters.However when the deal was announced in January 2006, theplan was to take over all of Air Sahara’s assets for $545 million.•Jet Airways was also looking at capturing more market sharepost the deal. It used to have a 40 percent market share whichfell down to 27 percent at the time of the deal. The major reasonwas Jet’s intention of becoming the king of Indian skies bybecoming the number 1 private airlines in the industry
  7. 7. i Strategic Fit it was a vertical acquisition as, Air Sahara as on 2006 hada market foothold of 12%, which increases Jet’s marketshare to 45%. Air Sahara had a vast parking bays atimportant metros, which can be used by Jet to reducecongestion time and reduce fuel burning up to a largeextent. Air Sahara was mostly servicing the domesticmarket (24 domestic and 4 international) and thisincreases the domestic share of Jet. Air Sahara had afleet strength of 26 which drastically increase Jet’s Fleetstrength, without purchasing any new airplanes.
  8. 8. i Operational FitScreening Target Target Company: Air Sahara Operational FitThe load factor of Jet in its international flights was 73% and indomestic flights was 72%. Air Sahara had a load factor of 72%on domestic route and 65% in international flights. So, usingthe expertise of Jet, Air Sahara could gain. Sahara had 4international destination, Jet Airways also had internationalflights to those destinations from the same source. So,efficiency and monopoly could be increased. Air Sahara hadan identical fleet as the Jet’s consisting mostly of B737.Maintenance in case of was easy and effective. some Analystsestimate that a cost saving of Rs. 150 crore -200 crore isachievable due to acquiring of parking bays.
  9. 9. DEAL• Jet Airways announced its first takeover attempt on January 19, 2006, offering 2300 crores rupees in cash for the airline.• Market reaction to the deal was mixed, with many analysts suggesting that Jet Airways was paying too much for Air Sahara.• The Indian Civil Aviation Ministry gave approval in principle, but the deal was eventually called off over disagreements over price and the appointment of Jet chairman Naresh Goyal to the Air Sahara board.• Following the failure of the deal, the companies filed lawsuits seeking damages from each other.
  10. 10. i Target Valuation•The entire business of Air Sahara was valued at Rs. 2300 byJet Airways.• whereas the valuations by E&Y for Air Sahara was done atRs 3382 crores•The valuation has been made on the comparable value withrespect to the valuations of Jet Airways. Only the assets will beacquired, liabilities to be borne by Air Sahara itself Nikhil Gargfrom Edelweiss Capital said that if Jet Airways pays Rs. 2300crore to Air Sahara, then Jet would be overpaying by 35%, asbecause the valuations of Jet dipped by 35% within months ofdeal talks.
  11. 11. i Target Valuation(Revised)•Valuations made are comparable with the Jet’s marketvaluation. After the talk of deal Jet’s valuation slipped byaround 35%, so the new valuation of Air Sahara was done at35% lower valuation of Rs. 2300 crore i.e. Rs. 1450 crore•Rs. 900 crore were paid immidietly but . The balance of INR550 crores were payable in four interest free annual equalinstallments .•The entire deal was done through debt, majority from IDFC,the company’s long standing banker.
  12. 12. i Synergy•cost saving of Rs. 150 crore -200 crore was achieved due toacquiring of parking bays•The ticketing costs were reduced for JetLite by moving to webplatform•Increased customer based helped them reduce cost ofoperation•50% Reduction of staff due to synergies
  13. 13. HUMAN RESOURCES RELATED ISSUES• In case of Staffs integration, Jet Airways was quick to lead the Air Sahara employees through a 90 day period training.• Lufthansa Technik team provided support Deal to absorb any excess employee back to Sahara Group To avoid Cultural Clashes, Air Sahara was converted to Jet Lite , having a different philosophy from its parent, so that a low cost structure can be developed.
  14. 14. HUMAN RESOURCES RELATED ISSUES (CONT…)• Reduction of staffs due to synergies was made close to 50% reduction in headcount for the entire group.• Jet was faced with immense criticism and opposition by various organizations and political parties Jet’s chairman, Naresh Goyal reinstated the employees a day later saying he was not aware of these sackings. So, the HR integration was not smooth enough.
  15. 15. POST MERGER INTEGRATION• Jet Airways and Air Sahara had an identical fleet consisting of B737. So, after the merger the Air Sahara planes were immediately brought into service.• Only 20 of the 26 of Sahara are actually flying. So, Jet infused another Rs. 200 crore for refurbishing the entire fleet Bulky insurance policies were removed to short term cost efficient policies.• Released premises and office spaces not required
  16. 16. POST MERGER INTEGRATION(CONT…)• 2 CRJs(Canadair regional jet) which has 70 to 100 seater were removed and ATRs(Avione de transport regional)- Airbus were leased to reduce maintenance costs of a different aircraft.• The ticketing costs were reduced for Jet Lite by moving to web platform Food and Cabin Amenities were reduced• Loss making flights discontinued Business class services withdrawn.
  17. 17. The Joy of Flying….

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