The messed up Jet Sahara deal

Earlier this year, India saw its first big airline acquisition, when Air Sahara, run by the Sahara group, was taken over by Naresh Goyal's Jet Airways. The deal was worth Rs. 2300 crores, and was talked about the world over as a preview of what was about to happen in the promising Indian aviation sector.

As usual, there were people against it, including the Commies, who said this would create a monopoly and all that crap. Usually in a free market, acquisitions mean one has automatic access to the acquired company's infrastructure, with some riders, but for a relatively 'free' economy, which they say India is, this deal was far from clean. The Government of India was involved in every step of the way when this deal was announced, much because of its need to play big brother. In my previous posts I have already talked about the Con'gress's mindset to play big brother, like it always has during much of our independent lives. You name a big deal in the country and you will find that the Government of India is watching it like a hawk. The reason is simple, India must be protected from itself, and the only one who can protect is the Government of India. Well, thats what the successive governments think anyway. In the view of the Government, every private entity is out to hurt the country, and hence all this 'liberalization' and all these new-age practices have to be watered down with a heavy dose of socialism. After all, these pansies must look out for the interest of the vote bank that makes the most noise, and in India's case, that has always been the numerous trade unions oweing their allegiences to one party or the other.

Then there's the Chinese puppets in India. These morons couldn't see a good idea if it walked naked in front of them. Old habits die hard, and these elected representatives from mainly two states have managed to hold the entire nation to ransom. I have talked enough about their double game already. Its funny how one party supports something in their bastion, but is opposed to the same thing on the national level. Never seen that happening, but hey, you know what, I am sure the Chinese thought it out well before sending the orders down to their Indian arm. Thats my anti-Government rant for the day and now coming back to the Jet Sahara deal.

The deal had red flags on it from the start. Air Sahara has a lot of heat coming its way recently because of its shady trade practices and even shadier financial reporting. Then theres Naresh Goyal's Jet, which has been linking with the underworld for a long time now. This article from Money Control says that Jet's reasoning is that they are in a financial crunch, which I find really hard to believe. So one day they say alright, lets buy this company, and only a few months later they say they don't have the money to do it? Nah, no dice.

What caused the Jet-Sahara deal to fall through?


The Lucknow district court has extended the interim order freezing the Jet Airways-Air Sahara Escrow account until June 30, reports CNBC-TV18.

But what made the Jet-Sahara deal to fall through? Is the Home Ministry playing politics or was it just cautious in delaying Naresh Goyal's security clearance.

Jet Airways allowed the merger with Air Sahara to lapse after the deadline on Wednesday; and it did not even put out any statement. Even the stock exchanges were not informed. Now, Sahara has a curious explanation about why the deal fell through.

"The only reason they gave us was that they were going through a financial crunch and they wanted a cut in the deal," said Alok Sharma, President, Air Sahara. Sahara says the merger was conditional on Naresh Goyal being on Air Sahara's reconstituted board but analysts say that was not the reason why the merger fell through.

"It was clear they wanted to get out of it; security clearance was not the issue," Kapil Kaul, Civil Aviation Analyst said.

But the Home Ministry should have conveyed the reasons for the security clearance not coming though, in the absence of which, the government will be seen to be abusing its discretionary power to influence the course of the merger.

Analysts say that this episode raises regulatory issues and calls for a regulator to veto all aviation mergers and acquisitions.

Meanwhile, Jet Airways broke its silence with a one-line notice to the Exchanges stating that the deal was in court. But exclusive information with the TV18 network points out how Jet started pulling the plug on the Sahara deal on June 21.

It is learnt that top Jet Airways officials met in London that day to chalk out a plan to call off the deal. It seems Jet Airways Chairman Naresh Goyal was also present at this meeting.

The officials discussed the situation that would arise after the deal was called off. Also on the agenda, were plans to recall Jet's staff and resources allocated to Air Sahara.
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And now like every other big event in the country, this case heads to this country's favorite pub, the courts.

Jet-Sahara buyout deal in tailspin as both fly to court

The high-profile buyout of Air Sahara by Jet Airways is on the brink of collapse as both airlines approached the courts today with hours to go before the escrow account for the deal expires.

The Subroto Roy-founded airline has alleged that Jet Airways terminated the takeover agreement. ‘‘The deal technically falls through at midnight. We are ready to give Jet Airways an extension of 15 more days. If the deal falls through, we will run Air Sahara as a full-fledged airline from tomorrow,’’ Air Sahara’s executive vice-president Alok Sharma said.

Meanwhile, earlier in the day, in a move aimed at blocking Jet Airways from withdrawing money deposited in the escrow account created for the merger, Air Sahara moved the sessions court at Lucknow. It sought that Jet Airways be restrained from withdrawing any money from the escrow account.

Air Sahara’s move came soon after Jet filed an arbitration petition before the Bombay High Court, seeking direction to stop Air Sahara and its seven directors from withdrawing Rs 500 crore transferred by it in the escrow account.

While there was no clearance from the Union Home Ministry today for Jet Chairman Naresh Goyal’s candidature on the Air Sahara board, it is learnt that there is an in-principle approval. Clearly, financial reasons—Jet was seeking to lower the acquisition price—are the key factor behind the breakdown in the deal.

The first major indication of the deal going sour was the reported move by Jet asking all its top-level employees working with Air Sahara to report back to its parent company.

Even though Jet officials have not explicitly stated the reason for pulling out, in their affidavit to the court asking to block Air Sahara’s access to the escrow account, it says Air Sahara had not fulfilled conditions agreed upon, including transfer of infrastructure facilities like parking bays, arrival and departure slots.

Jet’s reluctance to proceed with the acquisition of Air Sahara grew over the past couple of weeks, particularly after Jet found it had to spend over Rs 250 crore to just get Air Sahara functioning in full capacity.

It’s learnt that Jet has been incurring an expenditure of nearly Rs 40 crore a month after it took control of Air Sahara’s operations. This sent calculations awry and prompted a rethink when the due diligence report indicated serious shortcomings in maintenance standards.
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It really shows Jet in bad light that they didn't do their homework before going through with the deal. Keeping all the government influences aside, it seems Jet failed to fully access the performance and risk involved with Air Sahara. The parent company, Sahara Parivar, like i said, is already under a lens for shady financial reporting and doesn't seem to be doing so well financially, and Air Sahara, it is learnt, was just as messed up. I can't understand how Jet failed to see this. The government wants to steer clear of this fight, it is learnt, but sooner or later it probably will be. All in all, lets wait and see how India's first major airline acquisition, and now first failed acquisition, turns out.

Jet deal not scuttled by delays: Govt

The government has reacted strongly against Jet airways claim that the deal with Sahara was scuttled because of procedural delays on its part. On Tuesday, Jet had issued a statement that the Rs 2300 crore Jet-Sahara deal had lapsed because of delays in the government processes.

Civil aviation minister Praful Patel however said its merger policy was in place one month before the deal deadline.The minister is upset over a Jet Airways' statement that says the deal fell through because of delays in government approvals.

Now Patel has set the record straight."A government does make policy to suit a particular airline a broad framework of mergers and acquisition policy was ready by May," said Patel.

Earlier, this week however, Air Sahara had claimed Jet Airways wanted the original amount Rs 2300 crore to be reduced.

"Jet Airways told us they are having financial problems and that's why they wanted a cut in the deal," said Alok Sharma, President, Air Sahara.

Original amount

Earlier in the day both Jet and Sahara moved the Supreme Court. Sahara says they want to ensure that their version of events is heard. Jet's immediate concern is that the case is heard in Mumbai and not Lucknow where Sahara had originally filed a case against them.

It's perhaps natural that Sahara and Jet will differ but as they fight one thing is clear the government would not like to be dragged into a controversy.