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| GoAir’s Wadia: It isn’t
a faux pas |
One winter storm on Valentine's
Day was enough to tarnish the reputation of us low-cost airline
major JetBlue. It was forced to cancel a quarter of its flights,
leaving thousands of flyers stranded for hours in parked aircraft
that couldn't fly; founder and CEO, David Neeleman was quoted in
us papers saying he was "humiliated and mortified." Last
fortnight Jeh Wadia, Managing Director, GoAir, one of India's many
discount airlines that have begun operations in the past couple
of years, might have felt something similar. Due to adverse weather
conditions, passengers on a GoAir Bangalore-New Delhi flight reached
their destinations 18 hours later. The flight that was scheduled
to take off at 9:30 p.m. on March 1 did so four hours later only
to get back to Bangalore. Finally, the flight took off at 3:30 p.m.
on March 2, and reached its destination at 6 p.m.
GoAir has landed with plenty of egg on its face-that a journalist
from a news channel was on board didn't help-although its woes
can in no way match those of JetBlue; the us discount airline
had to cancel 250 flights. Yet, both incidents highlight the improbabilities
that travellers take along with them on a low-cost flight. Jeh
Wadia attributes the delay to "factors beyond his control,"
in the main a fog in New Delhi. "Passengers were not in the
aircraft for more than four hours." Typically, a full-service
airline in such a situation would have offered passengers hotel
accommodation and food, thereby curbing their wrath. No-frills
airlines don't provide such luxuries, although Wadia points out
passengers were provided snacks and refreshments during the delay.
Other low-cost service providers, too, are learning how to cope.
"We have been in the business for two years and operate 80
flights a day. We ensure that passengers are taken care of if
there is a delay," says Siddhanth Sharma, Chairman, SpiceJet.
-Krishna Gopalan
Plenty
At Stake
Indian promoters are shoring up their holdings.
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| Kumar Mangalam Birla: Raising
stake |
As the stock markets correct,
it couldn't be a better time for Indian promoters to shore up
their stakes in their group companies. With almost every domestic
business conglomerate acquiring assets overseas, and with global
majors eyeing Indian markets like never before, increasing shareholdings
is necessary to ward off the threat of takeovers, hostile or otherwise.
Recently, Kumar Manglam Birla, Chairman, Aditya Birla group, announced
his intention to increase the promoter stake in Hindalco. Birla
is expected to scale up his holding by 5 per cent. The company
would be considering a preferential issue of equity and equity-linked
instruments to hike its stake from the present 26.87 per cent.
Before that Mukesh Ambani, Chairman, Reliance Industries (RIL),
announced the company would make a preferential allotment to increase
his stake in RIL to 55 per cent. In the past one year, the promoters
of RIL have increased their stake from 46.67 per cent to 50.62
per cent, by mopping up shares from the secondary market. Last
year, the Tatas raised their stake in Tata Steel by 3 per cent
to 30 per cent. Sajjan Jindal, Vice Chairman and Managing Director,
did the same with JSW Steel when he increased his stake to a comfortable
50 per cent from 45 per cent. Says Arun Kejriwal, a Mumbai-based
equity investment analyst and consultant: "When a promoter
is seen as consolidating his holding in his own company, it sends
a strong signal that he is bullish in his own business or the
promoters do so when they are worried about their own holding
in their own companies."
-Anusha Subramanian
Split
of Convenience
Kampani and Morgan Stanley have reason
to smile-finally.
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| Nimesh Kampani: Right
exit |
The sweetest of deals for an
investment banker doesn't always involve bringing two partners together,
and earning a fat commission on the transaction. Selling one's own
stake in a business-when valuations are at peak levels-can prove
sweeter. In December 2005, Hemendra Kothari showed the way when
he sold 50 per cent in DSP Merrill Lynch for $500 million (Rs 2,250
crore). Last fortnight another veteran deal-maker, Nimesh Kampani
snapped his seven-year joint venture with Morgan Stanley, and made
a neat killing in the process. Kampani's JM Financial sold its 49
per cent stake in JM Morgan Stanley Securities, the institutional
broking business, for an impressive $445 million (Rs 1,970 crore).
It bought back Morgan Stanley's 49 per cent holding in investment
banking together with other businesses like fixed income, equity
broking, wealth management advisory and distribution for $20 million
(Rs 88.5 crore). When the deal closes, Kampani will walk away with
some $425 million, and a number of businesses for him and his son
Vishal to run in the days ahead.
It's a sweet deal because when Kampani struck the JV, his contribution
to it was just $20 million. What's more, JM Financial gets to
retain 600 of the 700 employees, although the 100-odd who move
on to Morgan Stanley will include Joint Managing Directors Ridham
Desai and Sanjay Shah.
The institutional business sold to Morgan Stanley accounts for
55 per cent of the total revenues of the joint venture, with the
total institutional securities business valued at over $900 million
(Rs 3,960 crore). That would also mean Kampani gets $425 million
for selling a little over half of the JM Morgan Stanley portfolio,
and gets 45 per cent of it for just $20 million.
Those who've worked with Kampani in the past point out that
he was open to cashing out since 2002; his plan was always to
focus on fee-based income activities like venture capital, private
equity and asset management. "Somehow the price was never
right, so the deal never went through." Kampani, however,
says that "the decision to separate was Morgan Stanley's
and the investment bank had been talking of a split for two or
three years." It's worked out well in the end for both: One
gets a truckload of cash, the other a solo foothold into one of
the world's most happening markets.
-Mahesh Nayak
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