Wednesday, January 30, 2013

Should Retail Investors cheer for Jet Airways deal ?

There is noise around in the market that, Etihad Airways is buying equity stake in Jet Airways. The same news is confirmed by Aviation Minister of India. 


The Deal size is expected to be around $300M, suggesting a price of almost Rs 800/- per share based on current market capitalization. Etihad is expected to take 24 % stake in the company.

If promoters sells its stake, the price computed would be almost Rs 800/-, but if the deal structure is such that the money will go in the company (Jet Airways), by issuing new shares and then if we work out the price per share on expanded equity, the price arrived would be 550/-. The clarity has to emerge yet.

But let there be any outcome in terms of pricing, There will not be any open offer as Etihad Airways is only taking 24% stake in the company, which is below SEBI STAT requirement of making mandatory open offer.  

Jet Airways and the whole industry is still a cash guzzler and Jet is still loss making. A long term strategic investor may pay premium for the company but It does not command such high valuation  to make an investment call. Also there will not be open offer to support a price.

The positivity in the deal for retail investors is
a) The company may get much needed liquidity.
b) The pedigree of the company may change
c) Etihad may bring in its competency and synergies.

There doesn't seems to be a big money to be made with the declaration of the deal.

This is not a recommendation to anybody whatsoever to buy OR sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.

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