Tiger's parent fires off salvo
TIGER Australia's Singaporean parent has fired a shot across the bow of the competition regulator, warning that Virgin Australia is the only investor that can help turn around the troubled business.
In a strongly worded statement to the Singaporean stock exchange, Tiger Airways Holdings said it "does not plan to and will not seek new investors" for its Australian operations if the Australian Competition and Consumer Commission rejects Virgin's bid to take majority control.
"Virgin is the right party to partner Tiger, and will be able to strengthen Tiger Australia," it said.
"Tiger does not see, for example, a buyer who is a financial investor or non-Australian airline being able to provide operational synergies to enhance Tiger Australia's competitiveness. In other words, a new investor will not achieve Tiger's objective to turn around Tiger Australia."
The watchdog has signalled it could go either way in deciding whether to approve Virgin's $35 million bid for a 60 per cent stake in Tiger. The ACCC raised reservations about the deal because it will effectively return the country to an airline duopoly by removing a third independent player in Tiger.
But it is conscious that a rejection could lead to Tiger's Singaporean parent deciding to close the operations in Australia. Tiger Australia has notched up losses totalling more than $216 million since 2007.
Brokers, including Citi, UBS and CBA Equities, believe the regulator will eventually approve the deal when it decides on March 14.
While noting that the ACCC's concerns were valid, Macquarie Equities said that Tiger's ongoing losses suggested a worse alternative for consumers.
"Absent the Virgin deal, we believe Tiger Australia is at risk of being shut down given the shift in mindset of the Tiger board of directors who are increasingly concentrating their focus on the ASEAN market, and who have conceded Tiger is always going to struggle as an independent player in Australia," the Macquarie analysts said.
The analysts believe Tiger and Virgin will talk up over coming weeks the likelihood of Tiger exiting the Australian market if the deal is not approved.
In contrast to the Singapore-based Tiger, Virgin has been careful in its response to the regulator's so-called "statement of claims" released on Thursday, issuing a three-line statement in which it said the deal would boost competition in the Australian market to the benefit of consumers.
Virgin's purchase of a 60 per cent stake in Tiger's Australian operations is aimed at giving Australia's second-largest airline its own dual-brand strategy to counter Qantas and its budget offshoot, Jetstar.
Last week, shareholders in Tiger Airways Holdings voted in favour of Virgin taking majority control.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free