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A Final Push by Singapore Airlines Ltd to Take Tiger Airways Holdings Limited Private: What Investors Should Know

Last November, Singapore Airlines Ltd (SGX: J7X) had announced an offer to buy up all the shares of low-cost carrier Tiger Airways Holdings Limited (SGX: J7X). Just prior to the announcement, SIA had owned roughly 56% of Tiger Airways.

The closing date for minority shareholders of Tiger Airways to accept SIA’s offer to take the low-cost carrier private was originally supposed to be this Friday, 8 January 2016.

However, according to a news report from the Wall Street Journal published yesterday, minority shareholders of Tiger Airways have tendered only 22% of the low-cost carrier’s shares to SIA. This means that SIA still lacks the 90% control of Tiger Airways’ shares that it needs for the privatisation to go through.

This might be the reason why SIA had increased its offer price on Monday for the remaining Tiger Airways shares that it does not own. According to SIA’s announcement, the offer price has been hiked by 10%, from S$0.41 per share to S$0.45 per share.

The revised offer pushes the valuation of Tiger Airways to more than S$1.1 billion in total. SIA is also extending the closing date of the offer to 22 January 2016, giving Tiger Airways’ minority shareholders an additional two weeks to make their decision.

A higher offer price might be the final push given by SIA to take the loss-making budget airline private (SIA has mentioned that there won’t be further price increases).

If SIA is successful in privatising Tiger Airways, the former might see a big hit to its profitability going forward. In the offer announcement, SIA mentioned that its net income in FY2015 (fiscal year ended 31 March 2015) would have been 45% lower at just S$201.9 million if it had consolidated Tiger Airways’ results for the entire fiscal year.

Given that Tiger Airways has been making losses over the past few years, it might not be unreasonable to assume that the low-cost carrier would still be unprofitable in FY2016 or beyond.

Financial year ended 31 March Tiger Airways’ profit
2010 S$28 million
2011 S$40 million
2012 -S$104 million
2013 -S$45 million
2014 -S$223 million
2015 -S$264 million

Source: S&P Capital IQ

Fortunately, SIA has maintained a very healthy balance sheet; as of 30 September 2015, the company had S$4.9 billion in cash and just S$1.4 billion in borrowings (including capital leases). Even if SIA were to completely privatise Tiger Airways using cash, it would still be in a net-cash position after the deal, based on the latest balance sheet numbers.

Tiger Airways share price
Source: Yahoo Finance

The revised offer of S$0.45 per share might still be lower than the price that many of Tiger Airways’ current investors have paid to invest in the low-cost carrier (as seen in the chart above, Tiger Airways’ shares have traced a consistent downward path over the past five years). But, it seems that Tiger Airways will have a better chance to survive in the ultra-competitive low-cost carrier business only if it can gain easy access to the strong balance sheet of SIA.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own shares in any companies mentioned above.