Never before in India Inc.’s M&A history has a listed company been sold for less than Rs 5, the deal closed in 15 days and the acquirer exempted from the mandatory open offer to public shareholders.
This was the luck that backed Ajay Singh’s acquisition of then beleaguered SpiceJet Ltd., one of India’s three listed airlines.
SpiceJet has turned around since co-Founder Singh returned more than two years ago. Not many know though, how much he paid to take control of the budget carrier.
Or 3 U.S. cents. That’s what Singh shelled out to buy a 58.46 percent stake in SpiceJet from then promoter Kalanithi Maran and his investment company Kal Airways Pvt. Ltd. in January 2015, according to disclosures made in the Delhi High Court's judgement in a dispute between the two over convertible securities.
At the then prevailing price of Rs 21.8 per share, Maran’s stake was worth Rs 765 crore before he sold it to Singh, the disclosure said. The stock has since risen to Rs 125. Which means, Singh’s holding in SpiceJet is now worth Rs 4,400 crore.
Curiously, none of this information was disclosed by Singh, SpiceJet or Maran at the time of the transaction. Neither did market regulator Securities Exchange Board of India insist on a disclosure, allowing this to be the first-ever acquisition of a listed company with no price disclosure and at a 100 percent discount to its share price.
It is only now that this information has accidentally come to light as Maran battles Singh in court for failing to meet a deal condition. BloombergQuint's emailed queries to Singh and Maran to confirm the valuation remained unanswered.
Did Singh Get A Steal?
To be fair, SpiceJet faced near-closure in December 2014 as it ran out of cash for its day-to-day operations. It defaulted on statutory payments, forcing the aviation regulator to impose restrictions on its flights. The airline ended financial year 2014-15 with a loss of Rs 687 crore. In the same year, accumulated losses wiped out its net worth, leaving SpiceJet with a negative net worth of Rs 1,329 crore, according to company filings with the stock exchange.
Total debt stood at Rs 1,418 crore and the company had other short-term liabilities of over Rs 2000 crore.
“...legacy liabilities that could no longer be deferred coupled with extensive delays in expected funding and a hostile business environment during last fiscal faced by the airline industry, created immense cash flow pressure on the company,” the airline said in its annual report 2014-15. “Multiple reasons led to the financial distress of the company leading to near closure situation in December 2014.”
The Marans were unable to find any strategic investors until Singh offered to take over the airline. He managed to stem losses and the airline reported profits over the next two financial years.
But Ajay Singh’s acquisition of SpiceJet in 2015 is remarkable for more reasons than its measly price.
Fastest Transfer of Control
The management and control of the airline moved from Maran to Singh in 14 days. SpiceJet presented a scheme to the Ministry of Civil Aviation for transferring shares from Maran and Kal Airways to Singh on January 15, 2015, according to the airline’s annual report that year. The ministry approved it seven days later. The sale agreement was executed after another seven days.
No Open Offer
Singh was also exempted from making a 26 percent open offer to SpiceJet’s 1,39,000 public shareholders. SEBI’s Takeover Regulations mandate an acquirer to make an open offer and give public shareholders an opportunity to exit in the event of change in control. In SpiceJet’s case, the Directorate General of Civil Aviation, under the Aircraft Act, 1937, approved the deal and allowed him to skip this requirement.
It was a rare exemption, granted under a provision of the regulation that allows a ‘competent authority’ to waive the need for an open offer. Typically, that competent authority was interpreted to be a court, but then Chairman of SEBI, UK Sinha, suggested a government department enjoyed the same privilege. Sinha said this to BloombergQuint in an interview on his last day in office.
I can’t comment on this specific case, but you may be aware that in our Takeover Regulations there are provisions that if any scheme has the approval of a ‘competent authority’ under any Act of Parliament, then the Takeover Code obligations will not be applied. So SEBI does apply this exemption whenever there are approvals from various competent authorities. On the question whether in a particular case the share price has been disclosed or not, I am sure if it has not been disclosed and it is in violation of rules, SEBI will take action; or maybe, it has already initiated an action.UK Sinha, Former Chairman, SEBI (March 3, 2017)
An emailed query to SEBI chairman Ajay Tyagi on non-disclosure of SpiceJet’s acquisition price remains unanswered.
But now, 31 months after the transaction, Spicejet’s shareholders finally know that the airline was sold for less than it costs to buy a packet of peanuts. A small one.
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