Tiger Airways Holdings Limited (SGX: J7X) and Singapore Airlines Ltd (SGX: C6L) were halted this morning for a major announcement. Singapore Airlines has offered S$0.41 per share to privatise Tiger Airways Holdings Limited. The offer was roughly 35% above Tiger Airways’ one-month weighted average price. Interestingly, SIA would also offer an option for Tiger Airways’ shareholders to subscribe to SIA Shares at S$11.1043, a 0.4% discount from its closing price on Thursday. So, it is a fair deal for shareholders?
A reality check
Since Tigerair’s initial public offering in 2010 at S$1.50 per share, results from Tigerair had been nothing but disappointment for shareholders. Besides being profitable in FY2010 and FY2011, Tigerair has been loss making since then. Moreover, it was forced to scale down its operations during the past few years due to poor performance. Its survival till now has been backed by Singapore Airlines’ willingness to continuous fund the budget airline. In 2014, SIA increased its stake in Tigerair from 40% to 55% by converting its convertible securities. It might seems that in order for Tigerair to survive for the longer term, it would need the full support of its parent company.
SIA mentioned that the offer can be funded completely by its internal funding. At S$0.41 per share, the deal valued Tiger Airways at S$1.02 billion. As of the end of September 2015, Tiger Airways only has book value of S$209.2 million. Although S$0.41 per share is a far cry from its IPO price of S$1.50 per share, minority shareholders might be left with little choice. A Tiger Airways without the support from the financially strong Singapore Airlines might not survive in the long term at all.