The Hindu Business Line : A flawed flight plan

With the two parties going to court, the January agreement entered into by Jet Airways to buy out Air Sahara has crash-landed. Of course, it is not uncommon for corporate acquisitions announced with much fanfare to come unstuck on some ground or the other. Viewed thus, the latest development is not something unprecedented. But in all such cases the public has a clear idea, even when the deal is announced, of the hurdles that would have to be crossed. The public is thus enabled to make an informed investment decision if either or both are listed entities.

But in the instant case, transparency has been the first casualty with the contracting parties remaining silent or, at best, being niggardly with the dissemination of relevant information. Compounding the investor discomfiture is that the information, such as it is that has come into public domain, does not bear scrutiny. Take the news that Jet Airways sought a reduction in the acquisition price. If true, that does no credit to the quality of investment banking advice available in the country or to the process of `due diligence'. No less mystifying is the information that the chairman of the acquiring company did not get the security clearance from the Government to sit on the board of the target company. Granted that security appraisals follow their own bureaucratic approach, but surely a person cannot be a security risk for one airline while being perfectly acceptable for managing the affairs of another. Again, why should the incumbent management of the target company undertake to wash the sin of poor security risk of a person holding a key position in the acquiring company? Regrettable is that this opacity is entirely in accord with the current practice of listed corporations offering perfunctory information, with even such details as the nature of business of the target company, the acquisition price, the mode of financing, etc., missing. There is a case for SEBI to lay down the framework for disclosure of information so that price discovery in the secondary market operations of listed companies can happen objectively.

The episode is also a lesson on an important aspect of strategic management. Does inorganic growth through acquisitions make sense in an industry that is still being opened up and where intangible resources (parking slots, landing rights, etc.) command a premium merely because there is a temporary shortage of these resources? Shortages in an emerging economy have a habit of disappearing overnight as the glut in motor vehicles, cooking gas or telephone connections have demonstrated in recent years. This is something management scientists would have to ponder over as they analyse Jet Airways' abortive attempt to acquire Air Sahara.