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After six months of discussions, it is finally official. Media baron and political heavyweight, Kalanithi Maran will acquire a majority stake in low fare carrier SpiceJet.
Mr. Maran in his individual capacity and via his aviation company KAL Airways jointly owned with wife Kaveri, will initially acquire the 37.73% stake of the Kansagara family promoted Royal Holding Services Ltd., Wilbur Ross and his investment company WL Ross. To ensure this transaction does not breach the 49% foreign ownership rules of the Indian government, the transfer will be done in tranches. Mr. Maran will initially buy 24% from Kansagara and Ross and then another 13% from Ross in December.
In parallel, as per rules of the Indian securities market, Mr. Maran and KAL have today announced an open market offer to acquire an additional 20% stake in SpiceJet. The offer at Rs. 57.76 per share represents a three percent premium over last Friday’s closing price of SpiceJet of Rs. 56.05. The offer will open on August 6th and close on 25th. Maran is expected to pick-up enough shares to ensure his control on the airline.
Consolidation
SpiceJet completed the mandated five years of operation and has crossed the 20 aircraft fleet requirement making it eligible to commence international operations.
Till now, SpiceJet’s ownership has been extremely fragmented, which has resulted in many a delay on critical decisions. The airline has been grappling with attempts to raise $75~$80 million for its much needed expansion. Mr. Maran’s takeover will consolidate the ownership and his deep pockets will provide the funds needed to add more aircraft and an impetus to quick growth.
Clout
The Marans are a force to be reckoned with, both financially and politically. The Maran family is a core part of the DMK party, currently in power in Tamil Nadu state, as well as at New Delhi, as part of the UPA coalition government. Kalanithi’s elder brother Dayanidhi Maran is a union cabinet minister. The Marans do not lack on the financial front either. Apart from their flagship Sun media powerhouse, the Marans have widespread business interests across the south, and have come to dominate the businesses they are in.
In an area that requires both money and behind the scenes politicking, the Marans can be expected to use their clout to ensure quick and decisive actions which will make SpiceJet a game changer in Indian aviation.
SpiceJet has been already been given permission to operate to Colombo, a much desired destination that was previously refused by the Ministry of Civil Aviation before Maran launched his takeover.
The ASEAN region, especially Malaysia and Singapore have very strong cultural, and commercial ties with south India, and Tamil Nadu in particular. Tamil is in fact one of the four official languages of Singapore. A strong SpiceJet will compete far more effectively with ASEAN low fare behemoths AirAsia and Tiger Airways.
Management and Operations
Without doubt SpiceJet will increase its focus on the south, especially Chennai, and this is good. The south by and large has not received its due share of market focus by most Indian carriers. No Indian airline, with the exception of the single plane Paramount, claims any of the southern airports as its hub.
To the fears the Marans may shift the entire head-quarters of SpiceJet from Gurgaon near Delhi to Chennai, I offer a small saying by my uncle “In the south [part of India] man fears god, in the north its the other way around”.
There is also a fear that SpiceJet CEO Sanjay Aggarwal who was brought in soon after Wilbur Ross acquired a stake in SpiceJet may be replaced. This in my humble opinion will be a bad move. Aggarwal brings a great blend of hospitality and transportation experience and many SpiceJet initiatives showcase his learning from both industries. He is an asset SpiceJet can ill afford to lose.
