INDIA BUSINESS WORLD - JUNE 2006
THE MONTH THAT WAS...

DEAL OFF: JET-SAHARA DOGFIGHT NOW IN COURT

   THE Jet-Sahara deal has crashed. In a day of fastmoving developments, Jet and Air Sahara took their battle to court even as the home ministry decided to give security clearance to Jet Airways' chief Naresh Goyal but refrained from issuing it before the deadline of 21st midnight.

Simultaneously, the Sahara group initiated steps to regain control of its airline even as the consultants nominated by Jet to run Air Sahara quietly withdrew.

The Sahara group has also started exploring the possibility of raising $150 million to infuse fresh life into the airline, while keeping its options open to forge new partnerships. Notices of termination of the agreement as well as the escrow account are expected to be issued.

Air Sahara sources also said they will sue Jet for damages for a substantial amount.

For the proposed Rs 2,300-crore deal, Jet had paid Rs 500 crore upfront against lien on Sahara shares, invested Rs 100-120 crore in the Sahara operations and put Rs 1,500 crore in an escrow account. As per the agreement between the two parties, the deal was to be concluded by the midnight of June 21, failing which the amount in the escrow account would go back to Jet. Air Sahara obtained a direction from the Lucknow sessions court restraining Jet from operating the escrow account. The next hearing is in Lucknow on June 23.

    Jet Airways, on its part, has filed a petition before the Bombay High Court seeking direction to stop Air Sahara and its seven directors from withdrawing any money from the escrow account. Disputes over the Rs 500-crore payment made to Sahara will formally begin only after the deal is officially called off.

Jet Airways had insisted that the deal would not go through without company chairman Naresh Goyal getting security clearance from the government for board membership of the acquired company.

Since the government has not yet issued the clearance, although the decision to give it has been taken, Jet would like to maintain that its walking out of the deal would be in full conformity with the agreement. The Sahara management, however, has alleged malafide intention by Jet Airways saying the company did not co-operate in making the deal come through.

   “The names of four directors were approved and the deal could have gone ahead if they wanted,” said a source close to Air Sahara. “Naresh Goyal's decision to back off from the deal, which was approved by his entire board, has come as a shock,” the source pointed out.

After the home ministry finalises its view, it has to be conveyed to the civil aviation ministry. Rajiv Gandhi Bhavan, in turn, would convey the decision to the directorate general of civil aviation (DGCA), which is authorised to grant the clearance to airlines. This process could take several days.

In commercial deals dependent on government clearances for their conclusions, deadlines have been postponed to accommodate the government's pace.

IF this has not happened in the present transaction, it reflects lack of interest on the part of at least one party.

Meanwhile, the Air Sahara management led by president Alok Sharma stepped in to take back control from the Jet Airways executives who have been running the airline for the past two months. In a late evening Press conference, Mr Sharma said: “The Sahara group will revive the airline.”

Mr Sharma also said there is no question of looking for other investors till the situation is clearer.

The bourses have reacted positively to the deal being called off and the Jet Airways share closed at Rs 706, up 5.1%, on BSE. The share price of Jet has been moving up ever since new about failure of the deal was broken, after sliding consistently from Rs 1,150 at the time of the deal to Rs 600.