INDIA BUSINESS WORLD - APRIL 2007
The Month that was ...

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 marketshare, has decided to go ahead with the deal to buy out Air Sahara. The rapprochement comes in the middle of acrimonious arbitration proceedings, after Jet Airways walked out of an agreement to acquire Sahara in June last year. The transaction will now be completed in accordance with the original share purchase agreement, except for a $50 million discount in the enterprise value, 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 installments, sources said. The valuation is being seen as `way too high' by analysts, but the deal marks the end of nine months of uncertainty on the issue. Jet Airways shares ended flat Rs 644.85 on Tuesday after rising initially. The two sides had begun to move towards a settlement from Sunday. The counsels 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.

Though both Jet chairman Naresh Goyal and Sahara chairman Subroto Roy 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 contempt of court.

Of the Rs 1,950-crore valuation for Air Sahara, about Rs 680 crore has already been put into the airline by Jet. About Rs 125 crore worth of assets like helicopters and real estate are being removed from the valuation while Rs 200 crore worth of liabilities will be taken over by Jet.