"Air Deccan and Kingfisher Airlines" merger

On May 3 2007) The Vijay Mallya's Kingfisher was eyeing a controlling stake in Air Deccan, the boss of the budget airline, Capt G R Gopinath, responded by saying, "Mallya's from Venus, I'm from Mars."

Well, it would now appear that Venus and Mars can co-exist. UB Groups flamboyant Mallya, who's been on a takeover binge, made an offer that Gopinath couldn’t refuse. Mallya said he could come in as an investor in Air Deccan. Mallya's UB Holdings will board Deccan as controlling shareholder.

For Mallya, who came late to the party in the skies, the deal puts him in deadheat with Naresh Goyal for the airline industry’s numero uno position, with the Kingfisher-Deccan and Jet-Sahara combines staking out market shares of 31-34% each. Clearly, this is wedding season in aviation: Jet-Sahara, Air India-Indian Airlines and now this. Size matters in this cut-throat business and consolidation is the only way to stay afloat.

In their coming together, the two players are a study in contrast. Kingfisher is known to lavish its customers with the best of cuisine and comfort on board while Deccan would want its passengers to even pay for water. Deccan is a no-frills airline while Kingfisher would like to be known for luxury.

The board of Air Deccan issued in-principle approval for UB Holdings to invest up to 26% in the low-cost carrier. UB will spend Rs 550 crore for this stake, at a price of Rs 155 per share, roughly valuing Deccan, which has the second largest market share (after Jet but before Indian Airlines) at Rs 2,200 crore. (Jet paid Rs 1,450 crore for the whole of Sahara.)

In return, UB will get a preferential allotment of equity shares. Air Deccan has already received a pay order worth Rs 150 crore, with the rest of the money expected to come within the next four weeks. As per SEBI guidelines, UB will now make an open offer to the other investors (including the public and the non-promoters) to buy additional stake in Air Deccan.

The basic reason is looking to exploit all opportunities to save costs and reap the benefits of synergistic operations at the earliest. Addressing the media Vijay Mallya, Chairman, UB Group, said, "the Kingfisher-Air Deccan group will work closely to save on costs and, in fact, in our first full year of operations, we will save up to Rs. 300 crore on costs."