Jet-Etihad deal may skid on valuation runway

Abu Dhabi-based carrier seeks a cut in premium it had agreed to pay on Jet's stock price

Etihad Airways, which had earlier agreed to buy a 24 per cent stake in Jet Airways, has sought a reduction in the premium it was willing to pay on the shares of the Indian carrier. This is seen as a condition put by the Abu Dhabi-based airline for extending the agreement-closure deadline, which ends on July 31.

A top source associated with the deal said: “The agreement has a clause that deal can be terminated if requisite permissions are not received before July 31. However, the discussions are now on to renegotiate the terms of the deal at a price lower than that agreed upon earlier.” The two airlines are now discussing changes in the investor agreement. These include a possible revision in purchase price.

Under the agreement signed by the airlines on April 24, Jet Airways had agreed to issue 24 per cent equity to Etihad by way of preference shares in a deal valued at about Rs 2,060 crore. Etihad had agreed to a pay a premium of 31 per cent on Jet’s stock price (Rs 573 at that time). The Jet stock on Tuesday fell four per cent from its previous close on BSE to end the day at Rs 403.45.

Jet shareholders had approved the equity sale in an extraordinary general meeting on May 24.

The investor agreement has a long stop date clause, which stipulates that regulatory approvals for the deal will have to be secured by July 31. These are necessary for conclusion of the transaction. The two sides can extend the deadline, while the agreement also allows termination of the deal if the conditions (regulatory approvals) are not met.

Jet Airways and Etihad did not respond to email query on the issue. The airlines require clearances from the Securities and Exchange Board of India, Foreign Investment Promotion Board, Competition Commission of India and the Cabinet Committee of Economic Affairs before they can conclude the transaction.

However, the deal is facing roadblocks due to political opposition and concerns raised by various regulators over transfer of control to Etihad after the acquisition. Sebi and FIPB have asked the airlines to make changes to the agreement to ensure that control remains in the hands of the Indian promoter (Jet Chairman Naresh Goyal). Concerns have also been raised over shifting of Jet’s revenue management office to Abu Dhabi.

The shareholder agreement was revised in May to incorporate some changes. More changes were being proposed to address the concerns. Revised filings would be made to Sebi and FIPB, sources said. One of the amendments includes approval to board resolutions by a simple majority, instead of three-fourths of the number of board members as proposed in the original agreement.

TAKE-OFF TROUBLES

• April 24 Jet and Etihad sign strategic alliance. The latter agrees to buy a 24% stake in the former for about Rs 2,060 crore
   
• May 24 Jet shareholders approve stake sale. The airline defers resolution to amend the company’s articles of association
   
• May 27 The two airlines amend shareholder agreement to address shareholder and Sebi concerns on ‘control’ and ‘ownership’
   
• May 29 & 31 Subramanian Swamy and Jaswant Singh write to the PM against the deal
   
• June 13 PMO writes to the civil aviation ministry to redraft the Cabinet note on Abu Dhabi traffic rights
   
• June 14 Foreign Investment Promotion Board defers approval to Jet-Etihad alliance
   
• July 2 PMO defends the Abu Dhabi bilaterals and says there’s no division within the government on the issue