MAS to acquire AirAsia – Can’t Beat so Eat them Alive?

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Feb 19 2008
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When the managing director of MAS, Idris Jala, said the company is interested in M&A (mergers and acquisitions) with other Asia Pacific carriers to grow the company, it didn’t raise my attention. The reason was quite easy – on its own, the Malaysia Airline System (KLSE: MAS, stock-code 3786) does not have the financial strength to flex its muscle beyond the soil of Malaysia. Of course the national carrier could suck up public fund (considering government is the major shareholders) to do it but what was the whole objective(s)? Unless it’s to show off that it’s capable of eating up (or rather swallow) other airlines within Asia Pacific, there’s simply no reason for it to do so. Furthermore the carrier has just made some profit after many quarters of red.

But then the real intention was revealed when Idris Jala said the airline actually does not discount the possibility of mergers and acquisitions with low-cost carriers, including AirAsia Berhad (KLSE: AIRASIA, stock-code 5099). Now, that really raised my eyebrows not because the carrier finally expressed what a normal government-linked company will do (to swallow other successful company instead of building it up itself) but the timing of such announcement. Everybody in the industry knew how Idris Jala hates Tony Fernandes (the boss of AirAsia) for obvious reason. And if not for “invincible hands”, AirAsia would not be allowed to fly to Singapore under a reciprocal arrangement (Tiger Airways allowed to fly to Kuala Lumpur).

The surprising word from Idris Jala was his admission that competition between MAS and AirAsia is good for improvement, something very rare when the stubborn national carrier chose to pull AirAsia to sink together by putting all kind of obstacles by means of political interference previously. There’re only two reasons why MAS suddenly talks sense. Firstly the managing director is mad and the second reason would be the protected national carrier plans to acquire AirAsia, in a not very distance future – if you can’t beat them, eat them alive.

MAS acquire AirAsiaThe MAS managing director actually hinted to the (possible) plan of acquiring AirAsia – major shareholder Khazanah Nasional Berhad has agreed to dilute its current stake-holding of 69 per cent in the airline. Obviously MAS does not and will not give away free cash to Tony Fernandes, the same way Time DotCom Berhad (TIMECOM: stock-code 5031) asked money from DIGI.com Berhad (DIGI: stock-code 6947) success. Therefore, the M&A could see share-swap with the ultimate MAS and / or Khazanah becomes the major shareholder in the merged entity.

Would Tony Fernandes sell? Nobody hates money and if the offer is good why not? Furthermore the whole purpose was to make good money out of his brain cells and sweat over the years in building the empire and branding of AirAsia. To ensure the AirAsia remains profitable under MAS’s stable and not just an empty vessel after the acquisition, Tony could be given the free hand to run AirAsia while MAS becomes the holding company. Who said it’s hard to become a parasite? As long as both parties happily living together, it’s a good marriage. MAS’s own budget airline, FireFly, could be easily absorbed by AirAsia through the deal.

The main question to minority shareholders is definitely the offer price of the deal. Would the minority shareholders taken for a wild ride again? If Tony is not interested in the deal due to reason(s) known to him, could this (M&A) the reason why the rumors that Tony Fernandes was thinking of privatization? Pressured to work with a bunch of clowns is bad but to be forced to sell cheaply is worse.

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I certainly hope Air Asia won’t be eaten up just like that. MAS, with government backed fundings definitely has nothing to worry about “profitability”, which in turns allows them to slack off in terms of performance and accountability to shareholders.

Whereas Air Asia started from zero to hero, and by letting MAS eating them up, that just goes to show that “might is right”, and KLCI is going to lose another gem.

KLSE has lost and will continue to lose more gems if corporate governance does not attracts the right investors and thus the right value to public listed companies …

cheers …

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