Media baron boards SpiceJet with Rs 750 cr

Kalanithi Maran of Sun TV picks up 37.75% at Rs 47.25 a share.

Media baron Kalanithi Maran of Sun TV Network Ltd has bought a 37.75 per cent stake in SpiceJet, the second largest of the low-fare air carriers, for Rs 750 crore. The deal will be followed on Monday by an open offer for an additional acquisition of 20 per cent.

Maran’s younger brother, Dayanidhi Maran, is textile minister in the central government.

The deal was struck at Rs 47.25 per share, after a discount to SpiceJet’s market price of Rs 56.05 a share. Maran bought 30 per cent from Wilbur L Ross, one of the world’s biggest distressed assets specialists, and 7.7 per cent from the Kangsagara family, the earlier promoter of the airline.

Ross had converted 13 per cent of its foreign currency convertible bonds (FCCBs) till yesterday and will convert the rest at a later stage.

“Bhupendra Kangsagara will remain on the board of the airline,” said Maran, the CEO of Sun TV, after the negotiations.

Ernst & Young and Enam Securities were the merger & acquisition (M&A) advisors for Maran and Edelweiss Capital the M&A advisor for Ross and Kangsagara.

Maran said he would make the open offer on Monday. It is mandatory for any buyout of above 15 per cent to be followed by an open offer for another 20 per cent. Maran’s open offer will be at Rs 58 a share. If he gets his extra 20 per cent, he will own over 57 per cent in the airline.

It will be interesting to see if existing investors, both foreign and domestic — Tatas, Istithmar PJSC, the investment arm of Dubai World, and Goldman Sachs — use the open offer to cash out. In early February, Istithmar, an anchor investor in SpiceJet, sold a bulk of its 13.39 per cent stake to a clutch of domestic funds such as Reliance Mutual Fund, Birla Mutual Fund, DWS Invest BRIC Plus Fund.

Maran, who runs 20 television channels and two general newspapers in southern India, has been keen to enter the aviation business. He had earlier sought and got a no-objection certificate from the civil aviation ministry to run a non-scheduled air passenger service. The board of Sun Network had also given its approval for the foray into aviation and import of aircraft.

In December 2009, Maran had held discussions with Star Aviation Pvt Ltd, which owned a licence to start a regional airline in the south. For the past few months, he has been negotiating with different investors of SpiceJet for a possible buyout. Till recently, the difference in pricing was a major deterrent to any deal.

Airline just overcame losses
SpiceJet, with a fleet size of 20 aircraft and over 12 per cent market share, has just turned into the black. For the first time since its inception, it had reported a net profit of Rs 61.45 crore for 2009-10, compared to a steep loss of nearly Rs 334 crore in 2008-09. Revenue grew 29 per cent to Rs 2,181 crore.

A clear ownership will help SpiceJet rationalise its operations and expand its fleet, which earlier did get impacted due to the fragmented holding structure. It has plans to add four planes this year.

In the past two days, the SpiceJet stock fell 3.61 per cent. On Friday, SpiceJet’s existing financial investors, W L Ross and Istithmar Capital, converted foreign currency convertible bonds amounting to 64 million equity shares of Rs 10 each. Ross had bought the convertible bonds of SpiceJet in July 2008.

Various entities controlled by Ross, such as WLR Recovery III (India) Ltd, WLR Recovery IV/ESC (India) Ltd, India Asset Recovery Fund Ltd and WLR/GS (India) Ltd, had picked up stake in SpiceJet.

The earlier promoters, led by NRI businessman Bhula Kansagara, owned 12.8 per cent in the company via Royal Holding Services Ltd. Among other stakeholders, one promoter, Ajay Singh, and his family hold 10 per cent. The Tata Group is another significant shareholder, with a 6 per cent stake.