Jet-Sahara mega deal hits turbulence
Only three days are left for obtaining critical clearance, which may or may not come, writes Arun Kumar.india Updated: Mar 21, 2006 02:35 IST
The Rs 2,300-crore deal between Jet Airways and Sahara Airlines may not take off.
The validity of the escrow agreement signed on January 19 between the two airlines expires on March 24. Of the two government approvals necessary for the deal, only one — from the Department of Company Affairs — has come in. The DGCA's clearance is still awaited.
“Yes, the critical DGCA clearance is awaited,” Saroj Dutta, executive director, Jet Airways, told HT. “The escrow agreement deadline lapses on March 24 and without the clearance, the two parties and owners will have to decide on the way forward, either on March 24 or before that.” Sources said the government had expressed its reluctance over the transfer of infrastructure on the ground that it may lead to cartelisation.
Sahara insiders said there was no question of Jet being given an extension.
Sources said as part of the shareholder agreement, Jet Airways would end up paying nearly Rs 150 crore as termination fees to Sahara Airlines. The Rs 150 crore is believed to be the ‘break-up fee’ — part of the global practice in mergers and acquisitions these days.
Jet has already given Rs 120 crore as signing fee to Sahara Airlines. This was to be adjusted against the final payment of Rs 2,300 crore. In effect, if the deal falls through Jet will only have to pay Rs 30 crore more.
Dutta said the constitution of the new board of directors of the taken-over entity was hanging fire. “We’ll have to form a 100 per cent subsidiary to facilitate the transfer,” he said.
Sources, however, said without the infrastructure, Jet was not willing to go ahead with the deal. It is learnt that in order to get the transfer of infrastructure from Sahara Airlines, Jet had proposed to form a wholly owned subsidiary with a new name — Jet Express. With only three days left for the agreement to lapse, sources in Jet said it was difficult to get the DGCA approval.
Jet Airways sources said the health of the Sahara Airlines balance sheet was not as per the initial understanding.
“Against this backdrop, it’s better to sacrifice a few crores as termination fees than to lose a huge amount,” said a source.
Dutta said: “There’s no situation at all. We’re awaiting government approvals. Only the other day, we received the approval from the Department of Company Affairs.”
Jet Airways chairman Naresh Goyal was in lengthy confabulations with senior functionaries right through Monday in an attempt to work around the logjam. Dutta said it was a routine meeting since Goyal had returned from abroad and was examining the status of the Sahara transaction and the impending annual results.