The Deccan Aviation management, which on Thursday selected UB Holdings as its strategic investor at the rate of Rs 155 per share, had received quotes of higher amount from prospective investors. But UB was selected from among four serious contenders, keeping in mind the synergy of operations and also the long-term interest of Air Deccan and its shareholders.
“The deal was not done on the basis of highest price. UB Holding was selected, as it would benefit Air Deccan in many ways. Though in the front end both Kingfisher Airlines and Air Deccan would operate independently, there would be lot of integration in the back end to arrest losses,” said Vankat Ramaswami, Executive Director, Edelweiss Capital, who advised Air Deccan in this fund raising exercise.
Though several offers were received, four contenders including UB were short listed for final decision by the Deccan Aviation board. The other three include Anil Ambani’s ADAG, which was categorised as a corporate investor and two foreign private equity investors. One among the private equity investors had quoted higher amount but was rejected.
After the board’s approval for allotment of 26 per cent equity through preferential shares to UB Holdings, Deccan Aviation would convene an EGM to seek shareholder approval for the same. “The EGM would be held towards end of June, after which shares will be allotted to UB,” Ramaswami said.
Meanwhile, since acquisition has triggered an open offer immediately, several formalities need to be completed and the open offer period is scheduled to start from mid July. UB would be acquiring another 20 per cent Deccan Aviation shares from the open market with an approximate cost of Rs 450 crore.
“UB has already made it clear that the pricing for the open offer would be at the same price at which the deal has been struck. Investors can take part in the offer at Rs 155 per share. Based on the 26 weeks average price of Deccan Aviation shares, the price works out to be around Rs 135 per share,” Ramaswami said.
He said that unlike most acquisitions, this is a strategic investment from UB. “UB Holdings will be the single largest shareholder in Deccan Aviation without having majority control. The combination of Kingfisher and Air Deccan will lead to profitability for both the airlines,” he added.
This is Edelweiss’s second fund raising exercise for airlines in India, the first being for SpiceJet sometime earlier.
If Mallya manages to mop up 20 per cent additional stake through the open offer, he would still be 5 per cent short of majority stake — 51 per cent. Though Mallya has made it clear that he would be comfortable with the current arrangement for the time being, going by the past he would like to have majority control on the budget carrier.