Advanced Corporate Valuation
Tiger Airways Holdings Limited (Tigerair) is a low-cost carrier with headquarters in Singapore. The airline started as an independent airline in 2004. When the company was first listed in January 2010, the Singapore International Airlines Group (SIA) had a minority stake in it. By October 2014, this stake had increased to 55.8 per cent, which effectively made Tigerair a subsidiary of SIA.
Tigerair had been suffering from losses for four consecutive years from 2012 to 2015, amounting to more than SG$600 million in total. On November 6, 2015, SIA initiated a buyout offer for Tigerair at $0.41, in cash, per share. This was a premium of 32 per cent from Tigerair’s closing price of $0.31 on November 5, 2015. In addition, Tigerair shareholders who accepted the offer were given the option to subscribe to SIA shares at $11.1043. However, even after a revised offer of $0.45 per share, reception of the offer was lukewarm. Finally, the offer became unconditional on January 11, 2016, which meant that SIA would purchase all tendered shares even if it failed to secure the 90 per cent required to delist the company. The unconditional offer prohibited SIA from further increasing its offer price. It is worth noting that this offer is 39 per cent lower than what long-term minority shareholders had paid. Minority shareholders who purchased the IPO stock for $1.50 a share, and subscribe to all three rights issues since the IPO, would have paid an average of $0.67 a share.
You can gauge market’s reaction to SIA’s buyout offer in the following video:
Task
For this major assignment, you are required to go through the following exhibits as well as gather your own information to advise Tiger Airway’s minority shareholders whether to accept or reject the offer made by SIA. The case is available for purchase from Harvard Publishing (Links to an external site.)Links to an external site. as a reference point, however it is not a necessary requirement to complete this assignment as you will still be able to conduct your own research on the case using online resources.
On January 20, 2016, Hillhouse Capital, a China based hedge fund owned 5% of Tiger Airway’s shares, was deliberating whether to accept the latest buyout offer of $0.45 from SIA. This offer was an increase from the previous offer of $0.41 per share in November 2015.
If they accepted the offer, Hillouse Capital would be selling at a significant loss, because they were among the first investors who had paid $1.50 per share at the initial public offering and had stayed loyal throughout the various rights issues. On the other hand, if they held out for a higher price, and SIA managed to acquire more than 90 per cent of the shares, Tigerair could be delisted and Hillhouse Capital would be left with shares which could no longer be easily traded. As a minority Tigerair shareholder, what should Hillhouse do?
You are required to evaluate the buyout offer from SIA on behalf of Hillhouse Capital. The report shall be professionally structured (preceded by a brief executive summary) to address the following questions for your client:
1.
From their perspective, is the buyout offer a fair deal? Would you advise Hillhouse Capital to accept SIA’s latest offer of SG$0.45, given that they had paid an average price of SG$0.67 per Tigerair share? (Apply both relative valuation & intrinsic valuation model) *note that your model should be stressed test with sensitivity and scenario analysis.
2.
Should the share valuation take into account synergies that might result from the acquisition? Given that Hillhouse Capital is a $20B hedge fund, what other options are available to them? Should Hillhouse Capital exercise their right to buy SIA shares at SG$11.1043?
Team
Team Structure: The number of students in a team MUST be equal to 4 or less. Team members can ONLY be form within their class sections.
Sign up to a group under People (on the left menu) and select the section you are currently enrolled in. Canvas will automatically assign a group leader for each group and the leader is responsible for on time submission on behalf of the group.
For more information, check these Canvas guides:
How do I join a group as a student? (Links to an external site.)Links to an external site.
Please submit these documents:
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Report (Word doc)
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Excel model
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No more than 10 pages in total.
