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

JET MAY CALL OFF SAHARA TAKEOVER

   THE proposed Rs 2,300-crore takeover of Air Sahara by Jet Airways — one of the largest corporate deals in India — is coming unstuck. If Jet chairman Naresh Goyal does not get security clearance from the government before the midnight of June 21, the deal may be called off. It seems Jet is using the lack of security green light to wriggle out of the deal, which has been given a thumbs-down by the market with the Jet share plummeting to new lows.

The Sahara Group, obviously, is not liking the idea and is fighting hard to get the security clearance before the deadline. Both sides are tightlipped in view of the sensitivity of the issue, but sources close to the deal said Jet had indicated clearly that the deadline for getting government approvals would not be extended. The onus of getting the clearances is on the Sahara Group. It was Air Sahara which had applied for reconstitution of its board with Mr Goyal as chairman, sources said.

While the home ministry cleared the appointment of Vijay Kelkar, Vic Dungca, Javed Akhtar and Saroj Dutta –– all Jet Airways directors –– as directors on the reconstituted board of Air Sahara, Mr Goyal did not get the green light.

It is understood that Mr Goyal has rejected the idea of appointing anyone else as the chairman of Air Sahara, which is now being run as a subsidiary of Jet. Mr G Shetty –– head of the team of Jet consultants now running Air Sahara –– has been camping in London with Mr Goyal and his key associates involved in the mega takeover. The Jet chief was supposed to be in the Capital last week but called off his visit at the last minute.

Sources close to the Sahara Group believe Jet may be blocking the approval. This is based on the view that the Air Sahara board revamp could be cleared even without Mr Goyal getting clearance.

WHILE government sources said the security clearance for Mr Goyal was unlikely before the June 21 deadline set by the two companies, there was speculation that Jet was not trying hard enough to get it done.

Sources close to the Sahara Group even believe that Jet might be blocking the clearance. This apprehension is based on the view that the civil aviation ministry and the director general of civil aviation (DGCA) could approve reconstitution of the Air Sahara board even without Mr Goyal getting security clearance. Four directors have got the security go-ahead from the home ministry, industry sources emphasised.

Jet Airways sources said four options were under discussion during the past week, and these included scrapping of the deal. Mr Goyal, it seems, clearly rejected the idea of nominating another candidate for chairing the Air Sahara board and also extension of the deadline. That leaves the Sahara Group with the only option of getting the clearances done before the deadline or face divorce.

Jet has already paid an advance of Rs 500 crore (with all shares of Air Sahara as lien) and spent another Rs 100 crore to run Air Sahara. While this investment would be sunk if the deal fails, the Sahara Group may also seek compensation. On the other hand, Jet would be able to get off the burden of integrating Air Sahara with itself. Legal professionals are also being consulted by both sides.

The turbulence that hit the Air Deccan IPO and plummeting prices of aviation stocks could have influenced Jet to move out of the deal, industry veterans feel. In any case, the valuation of Air Sahara was considered to be overblown at around Rs 2,300 crore ($500 million). If the deal fails, the Sahara Group would be left to pick up the pieces and get its airline back in shape.