Indian independent NEPC Airways is moving aggressively to consolidate its position as a major domestic player with a hostile takeover bid for rival Modiluft.
NEPC's chairman Ravi Prakash Khemka's goal is to become the largest independent in the Indian domestic sector. 'We want to be number one in the airline business,' he says. Last year the carrier took over Damania Airways, which now operates as NEPC Skyline on the country's major trunk routes with four Boeing 737-200s. NEPC's seven Fokker 27s feed regional traffic into the Skyline operation.
Khemka has also received government clearance to acquire three 200-seater aircraft: combined with Modiluft's aircraft that would bring the total fleet to 20 (including two executive jets operated by NEPC).
NEPC launched his bid for Modiluft with an advertising campaign, offering to buy Modiluft shares for Rs28 each - 40 per cent above the market price of Rs 20 at the time. The press notices asked shareholders to respond between 4 March and 4 April 1996. The cash rich NEPC group, with an annual turnover of Rs23 billion ($644 million) from its diversified operations, is pursuing a shrewd strategy. With a general election due in April, it is relying on Modiluft's share price to fall towards the end of March, as the usual pre-election uncertainties start to take hold, making its offer too attractive to resist.
The main bone of contention between Khemka and Modiluft's chairman, Satish Kumar Modi, is over who holds most of the equity. On paper Modi holds a controlling stake of just over 58 per cent in his airline, but Khemka claims the bulk of the shares are held by institutional investors in lots of 10-15 per cent each. Press reports suggest Modi's true stake may be as low as 15 per cent, as the rest is secured against loans he has taken out to solve liquidity problems at the carrier.
Khemka claims Modiluft investors are nervous and that any sizeable share transaction would wipe most of the value off the shares. 'For large shareholders like the institutional investors my offer provides a sensible exit route,' he says, adding that he will be able to acquire 47 per cent of Modiluft by April this year.
In a counter offensive, Modi has filed a petition with the Securities Exchange Board of India complaining that NEPC's tactic of using newspaper advertisements in its takeover bid breaks company law. 'How can it happen when Modiluft is not for sale and I'm not selling my stake?' asks Modi.
But Khemka says his interest in Modiluft was sparked when investors began offering their stakes for sale, including Modi. 'I heard that SK Modi was trying to sell his stake to Lufthansa so I made him an offer four months ago through Jardine Fleming to unload his shares to me instead of the multinational.'
Lufthansa, which has a management and technical agreement with Modiluft and leases the four B737-200s to the carrier, refuses to comment on NEPC's bid, but privately officials admit they are concerned about the Modi-Khemka battle and are watching developments closely.
Modi has long sought to draw Lufthansa in with an equity stake but the relationship has been rocky in the past, with Modi regularly defaulting on lease payments on the four B737s. Ironically, Lufthansa Cargo has recently taken a 40 per cent stake in a joint venture with Hinduja Group to set up an Indian cargo airline.
Ravi Prasad
Source: Airline Business
