News: Jet, Sahara merger deal crash-lands

(DNA 22/06/2006) Bangalore - The Rs 2,300 crore Jet Airways-Air Sahara merger went kaput at the stroke of midnight on Wednesday on “technical grounds,” including lack of regulatory approvals for Jet chairman Naresh Goyal.

Both parties immediately moved courts to control the advance money already paid by Jet for the deal and placed in an escrow account with ICICI Bank.

But the Sahara group appears to have been a wee bit ahead in the game. It convinced a Lucknow court to temporarily restrain Jet from withdrawing Rs 500 crore from the escrow account till June 23. Jet, for its part, filed an arbitration petition before the Bombay high court seeking to protect the escrow account.

DNA Money first reported the impending collapse in its June 19 issue.

Wednesday’s developments, when the home ministry deferred a decision on giving security clearance to Jet chairman Naresh Goyal, effectively killed the deal. In the process, Jet may have escaped carrying a millstone, but it could still end up losing anywhere between Rs 100 crore and Rs 600 crore, depending on what happens to the escrow account money.

Apart from the advance money, Jet, which has been running the airline since January, is believed to have suffered operational losses, too - rumoured to be another Rs 100 crore. This red ink could seep into Jet’s books.

And even as officials from both the airlines unofficially claimed that the deal was off, till late on Wednesday night they declined to make the announcement official. Air Sahara president Alok Sharma, however, made it clear that from Thursday Sahara would be running the airline as before.

According to a source, Gaurang Shetty, Jet general manager, marketing, and his team, which had been running the Air Sahara operations after the deal was struck, have already moved out and Sahara has already taken over the operations.

“Unofficially, Jet has more or less terminated the deal, but it is not making it official. They do not want to buy Sahara at any cost, and are in consultation with legal advisers on what the next move should be,” said the source.

While Air Sahara claimed in the Lucknow court that Jet had terminated the agreement, Jet, in its own petition in the Mumbai high court, sought direction to stop Air Sahara and its seven directors from withdrawing Rs 500 crore transferred by it as part of the Rs 2,300 crore acquisition deal reached on January 19.

Jet Airways had paid Rs 500 crore on March 29 as advance payment to the escrow agent for purchase of Air Sahara. Jet has contended that it was entitled to close the agreement without giving a notice to any party if the conditions of the agreement were not fulfilled by June 21.

Jet alleged that Sahara has not fulfilled the conditions agreed upon, including transfer of infrastructure facilities like parking bays, arrival and departure slots.

Seeking to restrain Sahara from having access to the escrow account, Jet has stated that Sahara should not be allowed to issue notices to ICICI Bank to the effect that it has met all the conditions.

Jet held that under the agreement, Sahara was entitled to claim Rs 500 crore from the escrow agent only on completion of the takeover exercise. In case of termination of the agreement, Sahara has to repay Rs 500 crore within seven days of the termination without any dispute, Jet stated.

The Lucknow court’s interim order to freeze the escrow account till June 23 gives the contending parties two more days to work out a final compromise, but this appears unlikely since the Jet management appears to have decided that the deal is too costly. It was looking for ways to either bring down the price or opt out, and the security clearance issue has enabled the deal to become infructuous by missing the deadline of June 21.

“We had made an offer for a possible extension of 15 days’ deadline, which is still available with Jet. Moreover, our offer of four members on the board is also available,” Air Sahara president Alok Sharma said.

Jet had demanded appointment of five members on the board of Air Sahara. While four had secured official clearance, that of Naresh Goyal is still pending with the government.