The board is expected to meet next in the third week of December and these directors have indicated they would like to have more details about the deal by then, according to people close to the development. “You can’t rush into a complex situation that could cost the group up to $2 billion without doing serious homework,” said one of them.
Another person indicated that the board may want a full-blown due diligence report by a reputed firm before taking a call.
While no one in the Tatas is saying the deal is off, there is a sense that Chandrasekaran, who had perhaps hoped for at least an in-principle nod from the board, may now have lost some of his earlier enthusiasm.
There is also a perception that more than the possible pitfalls of such an M&A, it is the fraught history the Tatas have with Jet’s founder Naresh Goyal that may queer the pitch.
Goyal is widely thought to have lobbied behind the scenes to thwart the Tata Group’s attempts to re-enter aviation in alliance with Singapore Airlines (SIA) back in the 1990s and early 2000s. The memory of that still rankles with some old-timers at Bombay House, who aren’t overly keen to “bail out” Goyal.
For Goyal and Jet, a slowdown—or worse, reversal of the acquisition process—would be bad news. The Jet stock, which had soared 40% over the past five days in anticipation of a transaction, fell nearly 7% to close at Rs 323 on Monday. The airline, in which Goyal and Abu Dhabi’s Etihad are the two largest shareholders with 51% and 24% respectively, is staring at financial defaults in the coming days.
TOI was the first to report, on October 18, that the Tatas and Jet were in talks. TOI was also the first to report on November 15 that Chandrasekaran would pitch the Jet proposal at the Tata Sons board meeting. And in its edition of November 17, TOI said that two directors had expressed reservations about the Jet purchase at the meeting.
There is an emerging view that the Tatas may wait to see if Jet, in the absence of any deal, ends up in insolvency court—and then bid for it, without having to negotiate with Goyal.
Chandrasekaran, who was not keen to acquire Air India when it was placed on the block by the government earlier this year—primarily due to some of the conditions for divestment—has spearheaded the talks with Jet in the belief that the acquisition would help the Tatas build scale in the aviation business, and transform it from being a fringe to a dominant player.
Besides Chandrasekaran, the Tata Sons board has nine members—three from within and six from outside. The external members include three independent directors and representatives of its controlling shareholder, Tata Trusts. Three of the external members—two prominent businessmen and the head of a private equity firm—were brought on board just two months before the holding company removed Cyrus Mistry from the chairman’s post in October 2016.
Tata Trusts chairman Ratan Tata’s blessings are seen to be critical to any deal with Jet. Tata Trusts is a 66% shareholder in Tata Sons, and according to the Articles of Association of the holding company, a crucial acquisition proposal like Jet or investments entailing more than Rs 500 crore requires the majority support of the nominee directors of the Trusts. But more than that is the fact that Ratan Tata’s word still carries weight at Bombay House. Tata, 80, who headed the group for over two decades, has had an abiding interest in the aviation business, and was reported to be keen on the group bidding for Air India. It’s not known if he is as interested in Jet.
Should the Tatas indeed decide to apply the brakes, it could leave Jet stranded on the runway. The airline hasn’t made a profit in six of the past nine financial years and had a debt of Rs 8,600 crore at the end of FY2018. It has had to delay salaries of employees and payments to plane-leasing firms.
If, on the other hand, the deal is consummated, it would give the Tatas a combined market share of 24% in the country. Jet, with a fleet of 124 aircraft, has a domestic market share of 16% and around 14% on international routes. AirAsia India and the 22-fleet Vistara have market shares of about 4% each in the country; neither operates internationally. The transaction would also give the Tatas a large network as well as slots at busy airports around the world.