Name : Bibhas Kumar Roll No. 2010G24 Weekend Batch 2010-13 SUB : Mergers and Acquisition.

MERGER OF AIR SAHARA WITH JET AIRWAYS

BACKGROUND Jet Airways announced its first takeover attempt on 19 January 2006, offering US$500 million (2000 crore 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 A second, eventually successful attempt was made on 12 April 2007 with Jet Airways agreeing to pay 1,450 crore ($340 million). The deal gave Jet a combined domestic market share of about 32% On 16 April Jet Airways announced that Air Sahara will be renamed as JetLite. The takeover was officially completed on 20 April, when Jet Airways paid 400 crore. MOTIVES : The deal has distinct advantages for both the parties It can make Jet the major player in the domestic sector, Jets market share has declined to 37 per cent from 42 per cent at the beginning of the 2006. Jet has also struggled to keep pace with the industrys capacity expansion. In the Delhi-Mumbai sector which accounts for 50 per cent of the countrys air traffic the industrys capacity has increased by 70 per cent in the year 2005. But Jets grew by a mere 7 per cent. Moreover, rivals also poached Jets pilots and other airline staff. In October and November of 2005, Jet had to cancel or combine almost 1,000 flights due to acute pilot shortage. This led to a loss of Rs 21.9 crore. The market leader was obviously taking a beating. After merger, Jet Airways will get the entire 26 aircraft belonging to Air Sahara, its 26 parking slots in various airports across the country as well as rights to operate 134 flights a day to 34 destinations. With a combined fleet strength of nearly 80 aircraft and a market share of almost 50 per cent in passenger traffic, Jet Airways clearly wants to emerge as the lead player in the domestic sector and get a fair share of the regional/international routes that are now in private operation. These include destinations in South East Asia, South Asia and Europe. The deal will be able to bale Air Sahara out of its mounting liabilities and save the employment of its staff. The Merger is a horizontal merger

MARKET REACTION AFTER MERGER: The Air Sahara acquisition will strain the balance sheet of Jet Airways but its international operations should drive earnings. The stock had plunged from late January 2006 ever since the Jet-Sahara deal was announced. From Rs 1,149.90 on 19 January 2006, the stock slipped all the way to Rs 919.15 on 22 March 2006 on selling pressure. Here, it found little support. The stock settled at Rs 933.40 on 30 March 2006. From here, the stock rose a little to Rs 1,048.90 on 10 April only to drop to a low of Rs 661.50 on 19 June 2006 under sever selling pressure in a weak market. The stock market was not flattered with the deal Jet Airways, Indias number 1 private airline, has finally struck with competitor Air Sahara. But the Jet stock has not been hammered the way some analysts were predicting when talks of the deal going through first emerged on April 10. The stock, which lost 5.57 per cent on April 11 on reports that the deal value would be closer to what Jet Airways had offered to acquire Air Sahara when it first bid for the company a year-anda-half ago, gained 3.24 per cent when the final announcement was made on Thursday. The stock ended the week at Rs 629.90.