The Hindu Business Line : `Sahara was enterprise-valued'

Mumbai April 16 "There is a common refrain in legal circles. A bad (out of court) settlement is always better than a good verdict," says noted lawyer Mr Harsish Salve, Jet Airways' counsel and one of the prime negotiators in the Jet-Sahara deal.

What Mr Salve apparently means is that it is often better to hammer out a settlement than going into court litigations, especially if a big financial stake is involved.

It was this precise refrain that brought the two airlines, Jet Airways and Air Sahara, back to the negotiations table, almost 10 months after their first agreement collapsed. And it was this refrain that helped the two airlines arrive at the buy-out price of Rs 1,450 crore, almost 40 per cent less than the price Jet had initially agreed to buy-out Sahara.

How precisely did Jet arrive at the valuation of Sahara? "This was not an asset-based acquisition. Instead, it was an enterprise-based one. In enterprise-based acquisition, we arrive at an enterprise value that includes synergies of assets and intangibles. Unlike asset-based valuation, you cannot come to a specific figure," Mr Salve pointed out.

`Middle ground `

Both the sides had strong points and both first came to a "middle ground". "In an enterprise-based acquisition, we see how it (the acquisition) is going to be of use to us. We arrive at a figure beyond which, we feel, it will not be valuable to us. And that is how an enterprise value is arrived at," Jet's counsel says.

Jet had a lot to gain from an out-of-the-court settlement. Sahara had sued for Rs 2,000 crore plus damages, based on its losses during the last 10 months. Thus, a settlement was more an attractive option for Jet than a litigation that could have taken several years to end.

The settlement will now increase Jet's fleet size to 87 aircraft, which is expected to reach 120 in the next two years. Says Mr Naresh Goyal, Jet Airways Chairman: "At that time (January 2006), it was the right price. But now the situation has changed — today's price is the right deal for both parties."

More Stories on : Mergers & Acquisitions | Airlines | Jet Airways (India) Ltd

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page