Air Sahara: Implementing the Acquisition Bid of Jet Airways By Nilanjan Sen, Ho Kim Wai & D. G. Allampalli

Abstract

The case documents an acquisition bid on Air Sahara by Jet Airways and its implementation. Starting in 1993, Air Sahara expanded from two to 27 aircraft, extended tough competition to the acquirer and market leader with innovative pricing and marketing strategies to garner 14 percent market share by 2005. In that year, Air Sahara hired Ernst and Young, India to value the carrier, and act as advisor for divestment of the stake held by Sahara Group and raise capital for business growth.

Jet Airways participated in the divestment program of Air Sahara to consolidate market leadership, made an offer for the 100 percent stake and valued the target at US$500 million based on the acquirer's market capitalisation, which raised eye brows from rivals and industry observers. Jet Airways felt that synergies from Air Sahara's large fleet, landing and parking rights in hub Indian cities, and international routes outweighed the downside.

To implement the merger, the two airlines formed a joint management group (JMG) and set March 2006 as the deadline for its completion. As more time was required to sort out financial issues and structure the merger deal, apply for regulatory clearances and prepare documents for ownership transfer, the JMG extended the deadline. On 20 June 2006, a day before the expiry of the extended deadline, Jet Airways proposed re-pricing of the merger deal, leaving Alok Sharma, President of Air Sahara with two options: re-price the deal or allow it to expire.

Issues: Due diligence and valuation of an acquisition target; implementation of merger bid and business ethics.

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