Jet resurrects Sahara buy at $50m discount

Legal Compulsions Force Jet To Agree On Rs 1,950-Cr Valuation

CORNERED by legal compulsions that would have extracted a tough price, Jet Airways, India’s largest airline by market share, has decided to go ahead with the deal to buy out Air Sahara. The rapprochement between the two airlines comes in the middle of acrimonious arbitration proceedings after Jet Airways
walked out of an agreement to acquire Sahara in June last.
The transaction will now be completed in accordance with the original share purchase agreement, except for a $50m discount in the enterprise value of the airline, sources close to the deal said. After accounting for earlier payments and debt, Jet will now pay about Rs 950 crore for Air Sahara.
Of this, about Rs 400 crore will be made in cash immediately and the remaining will be paid in four instalments, the sources confirmed. The valuation is being seen as `way too high’ by analysts, but it marks the end of nine months of uncertainty on the issue. The two sides had begun to move towards a settlement from Sunday onwards. The counsel for the airlines, Jefferey Bruden for Air Sahara and Harish Salve for Jet Airways, made a plea before the arbitration panel for adjournment of proceedings so that the issue could be discussed mutually. Jet Airways shares ended flat Rs 644.85 on Tuesday after rising initially.
Though both Mr Naresh Goyal, chairman of Jet Airways and Subroto Ray the chairman of the Sahara Parivar were in Mumbai on Tuesday, they were not directly involved in the negotiations.
The original agreement had also envisaged a deduction of liabilities which have been revised now. The two sides are now preparing a consent decree, which will be passed by the arbitration tribunal. Legal sources say this is a much stronger arrangement than the earlier share purchase agreement because any breach of the decree will amount to a contempt of court. Of the Rs 1950 crore valuation for Air Sahara, about Rs 680 crore has already been put into the airline by Jet Airways.
MONEY MATRIX
FIGURES IN RS CRORE
1950
ENTERPRISE VALUE
680
ALREADY PAID
200
LIABILITIES TAKEN OVER
125
ASSETS PUSHED OUT
945
PAYMENT LEFT
High drama marked parleys
ABOUT Rs 125 crore worth of assets like helicopters and real estate are being removed from the airline valuation and Rs 200 crore worth of liabilities will be taken over by Jet Airways. High drama marked the proceedings on Tuesday as a core team of six people prepared the drafts for negotiations — Jet Airways was represented by its auditor Rajesh Chaturvedi, former board member of TNV Iyer and counsel Rustom Gagrat. While Jayesh Shah, director transaction advisory services Ernst & Young, Satish Kishinchandani of DSK Legal and Pallav Agarwal, close confidant of Mr Subroto Ray represented the Sahara group.
Commenting on the new deal, Kapil Kaul, CEO of aviation thinktank CAPA (Centre for Asia Pacific Aviation) said, Jet is paying a very high price for Air Sahara. The Mumbai-carrier will have to pump in more money to turnaround the airline, he said. The deal will give Jet even more domestic capacity, in a market that is already overserved, he said.