Mallya buys 26 pc in Deccan for Rs 550 cr

Updated on Jun 01, 2007 02:07 AM IST
Vijay Mallya’s UB Holdings agrees to buy a 26 per cent stake in Deccan Aviation, reports Ranju Sarkar & Lalatendu Mishra.
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Hindustan Times | ByRanju Sarkar & Lalatendu Mishra, Bangalore

Vijay Mallya’s UB Holdings on Thursday agreed to buy a 26 per cent stake in Deccan Aviation, which runs budget carrier Air Deccan, for Rs 550 crore. Mallya has agreed to pay Rs 155 per share, valuing Deccan at Rs 2,115.38 crore.

Mallya will also make an open offer to acquire an additional 20 per cent stake from the market. The acquisition will make UB Holdings the largest shareholder in Deccan Aviation.

The acquisition will help Mallya consolidate his position in tandem with his Kingfisher Airlines, Air Deccan will have a 32 per cent market share, ahead of the Jet Airways-Sahara combine, which has a market share of 30-31 per cent.

‘‘Deccan brings a huge network and helps us consolidate the industry. The fundamental problem with the industry was that it was splintered with a large number of players. With this combination, we will have two or three big players with significant shares,’’ UB group president and CFO Ravi Nedungadi said.

The UB group is banking on exploring synergies with Deccan. Both fly the same type of aircraft Airbus A-320s and ATRs and can benefit by having common engineering, ground operations and pilots.

The UB group had paid Rs 150 crore, and the remaining would be paid in the next four weeks, said G R Gopinath at a briefing in Bangalore. Gopinath, who founded the airline, will continue as executive chairman, and Mallya will be the vice-chairman.

The promoters and other financial investors like Capital International and ICICI Ventures will have equal representations in the board. The Deccan board will appoint six new independent directors and new CEO and COO. For now, CFO Ramki Sundaram, who came on board a few months ago, will officiate as CEO.

Analysts said this deal would consolidate the industry, but were not sure if this would improve yields for the airlines immediately.

‘‘Common shareholding in itself is not likely to change much. We have the same capacity chasing the same market, just under bigger umbrellas, therefore, its hard to see fares rising in the short term,’’ said David Huttner, a Belgium-based international aviation analyst.

‘‘They need to put together a coordinated and well-thought-out strategy as to how they will allocate their assets, improve efficiencies and lower their costs, all while enhancing revenue,’’ added Huttner.

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