MERGER CASE:Tiger Australia Virgin Austtralia Essay

Submitted By Qian-Xia
Words: 3126
Pages: 13

1.1 Nature of Business
Target: Tigerair Australia
As one of Tiger Airways Holding’s subsidiaries (also known as Tigerair), Tigerair Australia started operation in 2007 with current routes reaching every state in Australia. The company focuses on budget trips and provides low cost flight service to customers. In addition to its first hub in Melbourne, Tigerair Australia set up its second base in Sydney in 2012. (Tigerair, n.d)
Acquirer: Virgin Australia
Virgin Australia, as part of the Virgin Group, was established in 2000 and rapidly developed into the second largest airline company in Australia. It currently has its headquarter based in Bowen Hills, Brisbane, Queensland. Before Acquisition, the airline owned 108 variety aircrafts fleet flying over routes that reaches 29 domestic cities and more than 400 worldwide destinations. Previously, Virgin Australia innovated the concept of “New world Carrier” in pursuing its “ low cost carriers” strategy .This strategy gives customer options between buying cheap tickets with “no-frill” service and more expensive tickets but with full service. Recently however, the company shifted its strategy towards attracting business and leisure travelers by launching Business Class service on most of its domestic routes. It was seen as a strategic move to strengthen its competitiveness against Qantas. (Virgin Australia, 2013)
Parents of Target & Acquirer: Singapore Airlines Ltd
Singapore Airlines, who is rated as 5-star Airlines by Skytrax, operates a hub at Changi Airport with main market area covering Southeast Asia, East Asia, South Asia and Australia. It also operates world’s two longest commercial routes from Singapore to Newark and to Los Angeles. As a global company that owns the youngest aircraft fleets in the world and has destinations spreading across six continents, Singapore Airlines commits to provide the highest quality service and maximize shareholders’ return. Singapore Airlines runs both full service and low cost airlines and holds business portfolios in diversified areas such as ground handling and engineering business.
Before the acquisition, the company held 9.9% of Virgin Australia and 32.7% of the Tiger Airway Holding Limited. (Singapore Airlines, 2013).

1.2 The Deal

On 30 October 2012, Virgin Australia Holding Limited (Virgin Australia) announced that it was going to acquire 60% of existing share of Tigerair Australia from Tiger Airways Holding Limited (Tiger Airways) for AUD 35 million , the final deal was closed according to this initial proposal.
As part of the transaction, two companies meanwhile entered into a Shareholders Agreement, Brand Licensing Agreement and Services Agreement.
If Tigerair Australia reaches certain financial performance target, an additional 5 million AUD need to be paid to the Tiger Airways.
Furthermore, this acquisition is a joint venture activities that both Tiger Airways and Virgin Australia has agreed to make a further 62.5 million AUD investment together to fund the growth of Tigerair Australia in order to increase Tigerair Australia’s aircrafts from 11 to 35 by 2018. The first 20 million will be invest by Tiger Airways and another 30 million will come from Virgin Australia and the remaining 12.5 million will be funded by both parties.
The AUD 35 million acquisition funds are obtained from Singapore Airlines in exchange of 10% more stake in Virgin Australia. This share is acquired through share placement at issuance price of $0.4288. As a result, Singapore Airline now owns 19.9 % stake of Virgin Australia.
This acquisition provides benefit to both companies. On one hand, Tigerair Australia can increase its business scale and becomes a sustainable and respected budget carrier in Australia. On the other hand, Virgin Australia could use Tigerair Australia business to re-enter the budget travel market segment. (Virgin Australia, 2012)

1.3 Stock Market Reactions to Announcement