SIA offers S$453m to take Tiger Airways private
Reuters file photo
SINGAPORE – Flag carrier Singapore Airlines (SIA) has made a S$453 million offer to buy out the other shareholders of its subsidiary Tiger Airways, in a move to boost operations through a full integration of the budget airline within the group.
South-east Asia’s largest carrier, which owns 55.8 per cent of Tiger, said today (Nov 6) it will pay 41 cents in cash for each share, a 32 per cent premium to Tiger’s closing price yesterday.
The offer values Tiger at about S$1.02 billion and comes with an option to subscribe for SIA shares at S$11.1043 per share.
The voluntary offer is conditional upon SIA and parties acting in concert with it owning more than 90 per cent of Tiger by the closing date to be announced later. SIA will de-list Tiger from the Singapore Exchange if the buyout is successful.
SIA chief executive Goh Choon Phong said: “SIA has supported Tiger through challenging times since its founding in 2003 and without further support, Tiger’s potential is limited. The full integration of Tiger into the SIA Group will result in enhanced operational and commercial synergies, ensuring its long-term success.”
He added: “While the budget carrier has done well in its restructuring to improve its financial position, its development potential is limited without deeper integration with the SIA Group to build a strong foundation for growth over the long term.”
There are no plans to retrench staff, he added, pointing out that the consolidation initiative is to drive future growth. SIA said it will be making about S$10 million annually in synergy benefits after the integration with Tiger.
According to Mr Brendan Sobie, chief analyst at industry research firm CAPA, this is SIA’s second bid to bail out Tiger as SIA strategically positions its group airlines in a highly competitive market.
Last year, SIA increased its stake in Tiger to 55 per cent from 40 per cent, injecting new funds in a rights issue to support the loss-making budget carrier.
SIA said the offer will be funded through internal cash resources. The amount required to acquire full control over Tiger is relatively small given its S$4.8 billion cash position, analysts noted.
Mr Timothy Ross, head of Asia Pacific transport research at Credit Suisse, said: “Tiger needs to return to profitability and the direct impact of this deal on SIA’s bottom line is not expected to be significant. However, the opportunity cost of not acquiring was much higher compared with the acquisition cost. Tiger, not to forget, is a low-cost airline operating in high-cost geographies.”
Tiger’s fleet comprises 24 aircraft — 22 A320-200s and two A319-100s, with an average age of four years and six months. It launched three-times-weekly services to Quanzhou, China, in September — and plans to launch new services to Lucknow, India, and a return of service to Lijiang, China, in the third quarter of the financial year.
DBS Bank is acting as the financial adviser to SIA in relation to the offer. The announcement today came a day after SIA reported a 135 per cent jump in second-quarter net profit from the previous corresponding period to S$213.6 million, driven by the absence of losses from associated companies with Tiger becoming a subsidiary, as well as higher dividends from long-term investments and lower fuel prices.
However, because of lower passenger yields, revenue for the quarter declined to S$3.8 billion from S$3.9 billion, and operating profit dipped to S$128.6 million from S$131.7 million.
After the announcement of the buyout offer today, Tiger shares surged 32.3 per cent to close at 41 cents, while SIA shares fell 0.1 per cent to S$11.14, compared with the 0.4 per cent decline in the benchmark Straits Times Index.
