merger of decan and kingfisher
DESCRIPTION
prepared by sabinTRANSCRIPT
Presented by :,Sabin yadav (053)MBA,BPIBS
Aviation Industriesof
Crowding the Skies
1948-1953
1991-1993
2003
2005-2006
2007
Kingfisher Airlines is a private airline based in Bangalore, India. Currently, it holds the status of India's largest domestic airline, providing world-class facilities to its customers. Owned by Vijay Mallya of United Beverages Group, Kingfisher Airlines started its operations on May 9, 2005, with a fleet of 4 brand new Airbus - A320, a flight from Mumbai to Delhi to start with. The airline currently operates on domestic as well as international routes, covering a number of major cities, both in and outside India
KINGFISHER AIRLINES
Simplifly Deccan is India’s first low-cost airline. It was founded and operated by Deccan Aviation Ltd. by Captain Gopinath in 2003 with regular scheduled flights from Bangalore to Mangalore and Hubli. When it started its operations, Deccan was known popularly as the common man's airlines. Continuing this trend even now, Simplifly Deccan sells air tickets for as low as 500/- even now, minus the taxes
Air Deccan
SWOT analysis
Strength:-High load efficiency
-Expanding operation in Sri Lanka
Weakness:-Focus almost exclusively on
South Indian Market-Lack of funds
-Limited advertisement.
Opportunity:-International Market
-Expanding tourism industry
Threats:-Indigo Airline
-Spicejet and other LCC
-Fuel price hike
• Globalizing competition• Financial circumstances prevailing in the
market • Decreasing the strength of the industry• Bringing about integration in the industry• Effecting changes in the technology used• De-regulation
Factors which influence mergers
• Reasons why these take place
• How these benefit the organization
• How various departments of an organization are affected
The factors that must be taken
into considerationwhen an
organization decides to go for
a mergertakeover or an
acquisition
• When two organizations decide to merge a new legal entity is formed . Therefore all assets and liabilities are combined; hence forth the financial status of the merger must be looked at.
• Legal issues of the organization must be looked at seriously.
Factors that must be taken in to
consideration
The primary reason here was to expand business and reduce competition.
Kingfisher airlines took over
Deccan airlines
G.R. Gopinath, Chairman, Deccan Aviation Ltd (right), and Mr Vijay Mallya
• Legally if an airline wants to operate overseas it must have a domestic status of having operated for 5 yrs and therefore in case of kingfisher operating overseas becomes easier.
• In a business of passenger transport there are many government duties and taxes. Therefore the sector is becoming unviable with heavy losses and with global recession even worse.
Contd…..
Final Merger Deal
Merger and Acquisition
Re-branding
• Renamed “Simply Deccan”
• New logo
• New tagline “The choice is simple”
LOSSES YEAR ENDED
Kingfisher Airlines
Rs.577crs 31st March,2007
Deccan Aviation
Rs.418crs 30th June,2007
DEAL STRUCTURE
• 1st Phase:- UB bought 26% stake at Rs.155
p.s. on 9th July,2007- Paid Rs.550crores
• 2nd Phase:- Open offer for additional 20% stake- Additional Rs.418crores
COST BENEFIT ANALYSIS
• Cash Paid = Rs.550Crs + 418Crs = Rs.968Crs
• Present Value of 46%stake = 62316254.28*137.5 = 856.85Crs
• Cost for kingfisher = Cash Paid-Present Value
= 968-856.85
=Rs.111.15Crs.
SYNERGIES
• Operational Synergy in the form of cost cutting(upto Rs.300crs.)
• Increasing market share(32-34%)• Have both direct and indirect
connectivity to the US, Europe and different Asian regions
SYNERGIES
• Received in writing slots to operate flights in San Francisco, JFK (New York) and Heathrow (London)
• These destinations will be connected non-stop from Bangalore, unique routes from India
• Also applied for Mumbai-Hong Kong, Mumbai-London and Delhi-Kathmandu routes.
a)Operational Synergies• Kingfisher and Air Deccan have exactly the
same fleet of aircrafts & the same equipment's (engines, brakes , etc.)
• This provides a huge opportunity on saving in engineering and maintenance cost.
Cont’d
.b) Infrastructure Synergy• Kingfisher and Air Deccan are now using 65 airports, of
which more than 28 are common to both.• The new entity will have over 71 aircrafts (41 Airbus
aircrafts and 30 ATR aircrafts). This will have air travel for all fares and all kinds of people.
• Offer the maximum number of 537 daily flights in 69 cities.
• Synergy benefits arising from a common fleet of aircraft.
Type Of Merger
• Horizontal Merger - Competitive company. • Reverse Merger - Air Deccan merged in Kingfisher.
Overview of aviation Industry in India
23%
8%14%
11%1%9%4%
11%
18% 0%
Market share pre merger
Jet airwaysJet liteAir deccan spice jetParamount airwaysindigo airlines Go air kingfisher air-linesAir indiaothers
22%
8%
29%11%1%
9%
18%1%
Market share post merger
jet airways jet litekingfisher Spice jetParamount airways Indigo airlinego air other
Kingfisher Air deccan
Rs 550 CR
7 3
26% stack
Kingfisher Air Deccan merger
:
Note:- Based on Market price, net asset value and discounted cash flow (By KPMG & Dalal shaw) Enterprise value of Air Deccan:- Rs 2115 cr
SWAP ratio
Changes in Stock Prices
1/11/2
007
2/11/2
007
5/11/2
007
6/11/2
007
7/11/2
007
8/11/2
007
9/11/2
007
12/11/2
007
13/11/2
007
14/11/2
007
15/11/2
007
16/11/2
007
19/11/2
007
20/11/2
007
21/11/2
007
22/11/2
007
23/11/2
007
26/11/2
007
27/11/2
007
28/11/2
007
29/11/2
007
30/11/2
007
3/12/2
007
4/12/2
007
5/12/2
007
6/12/2
007
7/12/2
007
10/12/2
007
11/12/2
007
12/12/2
007
13/12/2
007
14/12/2
007
17/12/2
007
18/12/2
007
19/12/2
007
20/12/2
007
21/12/2
007
26/12/2
007
27/12/2
007
28/12/2
007
31/12/2
0070
50
100
150
200
250
300
350
Stock Prices of Deccan Aviation
Price
s
Changes in Stock Prices
Kingfisher acquisition of Deccan under lens
• The Ministry for Corporate Affairs (MCA) has issued a show-cause notice to the acquirer (UB Group) for non-compliance with the provisions of the Companies Act.
• The Act prescribes that if post-acquisition the market share of the two entities combined exceeds 25 per cent the corporate concerned needs prior approval of the Union Government,. The official said that the notice was issued by the southern region field office of the Ministry.
The broad terms of the shareholders agreement are proposed to include
• Reconstitution of Board Directors• Management: Chairman Mr. Vijay Mallya
Vice Chairman Mr. Gopinath• Tag along Rights: Subject to applicable law, the
acquires shall have the right to proportionately tag along at the time of the sale of 5% or more of the fully diluted shareholding in the target company in any single transaction by the Promoters.
Kingfisher & Air Deccan- Merger Advantage
• The fresh equity capital will allow the Deccan to pay the loans & to fund various infrastructure projects.
• Reduction of cost by sharing infrastructure• The merger ensures that Kingfisher does not need to invest
more in infrastructure or in spare planes, thereby reducing costs and increasing profitability.
• The combined share of the two carriers will increase the Market share.
• As per the existing laws Kingfisher Airlines would not be able to operate on international routes until 2010. However Air Deccan would be eligible from the second half of next year as its five-year ceiling is coming to an end.
CONCLUSION
• It’s a capital intensive industry,• With few scale efficiencies,• Within a partly regulated infrastructure,• Free market entry• Price competencyThis was the right decision to merge for
achieving all of the above objectives.
Thank you….