CASE STUDY; JET-

ETIHAD COMBINATION
CASE
Merger & Acquisition

Submitted By Submitted to

Abhishek Kishan Mr. Mani Pratap Sir

CUSB1813125004 Assistant Professor and Faculty of Merger

and Acquisition
IXth Semester
School of law and Governance
School of law and governance
Central University of South Bihar
Central University of South Bihar

CENTRAL UNIVERSITY OF SOUTH BIHAR

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ACNOWLEDGEMENT
Firstly, I would like to thank my faculty of Merger & Acquisition Assistant Prof. Mani Pratap
sir for providing me an opportunity to make my project on such an interesting topic which is
also a contemporary issue as for now. This research has immensely helped me in building a
virtue in the discipline of Merger & Acquisition and enriched my vision with knowledge and
wisdom in respect of this discipline.

Secondly, I would like to thank all my colleagues and friends for helping me out in arranging

of the accumulated collected study material.

Lastly, special thanks to my parents for guiding me in giving the final touch to this project

and helping me out throughout this project.

Abhishek Kishan

CUSB1813125004

IXth Semester

School of law and Governance

Central University of South Bihar.

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Case Study; Jet-Etihad Airlines Combination

Case
Adjudicating Forum
The Competition Commission of India (CCI)

Parties to Adjudication
1. Jet Airways (India) Ltd. (Jet)
2. Etihad Airways PJSC (Etihad)

Relevant Legislations
Competition Commission of India Regulations, 2011
1. Regulation 14 –Procedure in regard to the transaction of business relating to
combination1.The regulation discusses power of CCI to invalidate a combination notice it
comes to the knowledge of the Commission that such notice is not complete and not in
conformity with the combination regulations.
2. Regulation 16 –Intimation of any change.

Issue of the case

Whether or not, the combination of Jet Airways Indian and Etihad Airlines, Abu Dhabi
projects any Appreciable Adverse Effect on Competition2 in the Relevant market?

In consonance of the abovementioned issue, there are some of the following Sub-Issues that
seeks attention Such as;

1. What would be the definition of relevant market with respect to the assessment of the
AAEC?
2. How come the AAEC observation in the issue has been made and concluded?

1
Notice u/s 6(2) of the Competition Act, 2002, given by Etihad Airways PJSC and Jet Airways (India) Limited.
Combination Registration No. C-2013/05/122. Decided on: 12.11.2013. Available on:
www.cci.gov.in/May2011/OrderOfCommission/CombinationOrders/C-2013-05-122%20Order%20121113.pdf.

2
According to procedure laid down under the Competition Act, 2002, the Commission has to first
ascertain whether there would be any appreciable adverse effect on competition in India through a
particular combination, its only if they conclude in positive that investigation by Director General is
initiated.
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The concept of "control"

Control is defined differently in different legislations, depending on particular understanding
of control relevant for the legislation, and control appropriate to such understanding. The
definitions of control in four key corporate legislation.

The definitions of control in four key corporate legislation are set out as below:
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Definition of Control under the Takeover Code

The definition of control under the Takeover Code is identical to the definition of "control"
under the Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997, which it replaced. The primary context in which "control" is
used in the Takeover Code is to determine whether an acquirer has acquired "control" over a
target company, so that the other investors in the company should be provided an option to
exit their investment in the company given such change in control. The consequence of a
finding of control in this context would ordinarily be that the relevant acquirer would have to
make an offer to purchase the shares of the target company from the shareholders that choose
to exit the company upon such change in control. The definition of control under the
Takeover Code has been litigated upon before various authorities and courts, including the
Supreme Court of India, with- out achieving significant clarity on its interpretation. A crucial
ruling in this mat- ter was expected in the appeal filed by SEBI before the Supreme Court
against the ruling of Securities Appellate Tribunal ("SAT") in Subhkam Ventures (I) (P)Ltd.
v. SEBI.3 The SAT, in its ruling1, had disagreed with SEBI's finding that Subhkam Ventures
(I) Private Limited ("Subhkam") had acquired "control" over a target company pursuant to
acquisition of certain rights in the target company. The rights acquired by Subhkam included
the right to appoint a nominee director of the target company who would be required to
constitute quorum for board meetings. Further, Subhkam had acquired affirmative rights in
respect of certain actions of the target company including the right to approve the annual
business plan of the target company, the appointment of key officers of the target company.

B. Regulatory Approvals for the Jet-Etihad Transaction

(a) FIPB approval

Under the FDI Policy, investments by foreign airlines in Indian airlines require the prior
approval of the FIPB and are inter alia subject to the condition that "the substantial ownership
and effective control of which (i.e., the Indian airline) is vested in Indian nationals ".4

Pursuant to the requirement for approval referred to above, Jet had filed for the approval of
the FIPB in connection with the Jet-Etihad Transaction. This was first considered by the
FIPB at its meeting on June 14, 2013. However, Jet's FDI proposal was deferred due to
apprehensions that effective control of Jet was being transferred to Etihad, in contravention of

3
Subhkam Ventures (I) (P) Ltd. v. SEBI, 2010 SCC OnLine SAT 35, available at http://www.sebi.
gov.in/satorders/subhkamventures.pdf
4
9 Paragraph 6.2.9.3.1(c)(iv)(c) of the FDI Policy of 2013.
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the FDI Policy. Subsequently, a revised proposal was submitted to the FIPB, which inter alia
:

i. reduced the strength of Jet's board from 14 to 12, and reduced Etihad
representation thereon from three to two;
ii. ii. granted Jet's promoter, Naresh Goyal, the right to nominal including the
Chairman who would have a casting vote;
iii. retained Jet's revenue management function in India (e posed to be shifted to
Abu Dhabi).5 The FIPB considered the revised proposal at its next meet
201321, and recommended the Jet-Etihad Transaction for approved
Committee on Economic Affairs ("CCEA")22, subject to the following. prior
Government approval would be required for any change or for any change in
Jet's shareholding structure; ii. all shareholder disputes under the SHA would
be adjudicate law (earlier it was proposed to be English law); and
iv. Jet would submit new Articles of Association before t before Finance
Minister for approval and then to the CCEA

The CCEA approved the Jet-Etihad Transaction on October.6

JET-ETIHAD AIRLINES ACQUISITION CASE

The Government of India liberalised the FDI policy in relation to corporation sector in 2013
and permitted foreign airlines to hold up airline companies. Subsequently, UAE's Etihad
Airways P signed an investment agreement with of Jet Airways (India) L listed Indian
company, on April 24, 2013, to purchase 24% of t of Jet (the "Jet-Etihad Transaction").7 The
Jet-Etihad Transaction foreign direct investment in the Indian civil aviation industry, f on
November 20, 2013 after navigating through the FIPB, S The Jet-Etihad Transaction was also

5
20 FIPB clears Jet-Etihad deal with riders , The Hindu, (July 30, 2013
www.thehindu.com/business/Industry/fipb-clears-jetetihad-deal-with- ece]; FIPB clears Jet-Etihad deal subject
to certain conditions The Economic Times, (July 29, 2013 available at
http://articles.economictimes.indiatimes.com/2013-07-29/ news/40872467_l_etihad-airways-jet-etihad-deal-fip.
6
Regulation 3(1) of the Takeover Code requires an acquirer, who together with persons acting in concert,
acquires shares or voting rights in a target company which would entitle them to exercise 25% or more of voting
rights in such company to make a public announcement of an open offer for the acquisition of shares from the
public shareholders. Further, the open offer requirement is also triggered under Regulation 4 of the Takeover
Code in the event the acquirer, directly or indirectly, acquires control over a target company.
7
1 Press Release of Jet Airways, Jet Airways and Etihad Airways Forge Strategic Alliance FDI Policy of
Government of India (April 24, 2013) available at http://corporates.bseind xml-
data/corpfiling/AttachHis/Jet_Airways_(India)_Ltd.
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subject to a post-close rev the regulatory journey culminated with SEBI finally approving
Transaction, without requiring Etihad to make an open

A. What's the Deal?

As part of the Jet-Etihad Transaction, Etihad invested US$379 million in Jet and acquired
24% of the equity shares of Jet (by way of a preferential allotment).8 In addition, Etihad also
agreed to invest US$150 million Jet-Privilege, Jet's frequent flyer program which was housed
in its subsidiary Privilege Private Limited, and provide or arrange for a loan of US$150
million Jet. Earlier that year, Etihad had purchased three landing/take-off slots own Jet at the
Heathrow Airport, London for US$70 million; these slots were frequently leased back to
Jet15. Based on publicly available information, the following agreements were executed in
connection with the Jet-Etihad Transaction: (a) Investment Agreement ("IA"), (b)
Shareholder's Agreement ("SHA"), and (c) Corpora Code ("CGC"), a code agreed to be
adopted pursuant to the SHA. As the Jet-Etihad Transaction, Jet and Etihad had also entered
into a Co Cooperation Agreement ("CCA") under which the parties agreed to joint policies in
respect of matters such as pricing, routes, marketing and sales. Further, Etihad could
recommend persons for appointment management positions at Jet. In order to satisfy the
various regulators re the Jet-Etihad Transaction, and most notably the FIPB, the parties had to
these agreements on at least three occasions in the manner set out below, to assure such
regulators that inter alia the effective control of Jet remains in India and was not transferred
to Etihad:

i. On May 27, 2013, the parties made changes to the SHA, CCA and CGC. These
changes were clarificatory in nature and the core nature of the transaction
remained unchanged16;
ii. On September 19, 2013, the parties entered into an amended and restated SHA, an
amended and restated CCA and an amendment to the IA pursuant to the
conditions imposed by the FIPB17; and
iii. In May 2014, the parties voluntarily modified the CCA to assure SEBI that
effective control remained with Jet18.

8
Jet-Etihad deal , Business S (November 20, 2013, available at http://www.business-
standard.com/article/companies/all- need-to-know-about-j et-etihad-deal-1 1311 2000302 1 .html
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B. Regulatory Approvals for the Jet-Etihad Transaction

(a) FIPB approval Under the FDI Policy, investments by foreign airlines in Indian airlines
require the prior approval of the FIPB and are inter alia subject to the condition that "the
substantial ownership and effective control of which (i.e., the Indian airline) is vested in
Indian nationals "19. Pursuant to the requirement for approval referred to above, Jet had filed
for the approval of the FIPB in connection with the Jet-Etihad Transaction. This was first
considered by the FIPB at its meeting on June 14, 2013. However, Jet's FDI proposal was
deferred due to apprehensions that effective control of Jet was being transferred to Etihad, in
contravention of the FDI Policy. Subsequently, a revised proposal was submitted to the FIPB,
which inter alia :

i. reduced the strength of Jet's board from 14 to 12, and reduced Etihad representation thereon
from three to two;

ii. granted Jet's promoter, Naresh Goyal, the right to nominal including the Chairman who
would have a casting vote; and

iii. retained Jet's revenue management function in India (e posed to be shifted to Abu
Dhabi)20. The FIPB considered the revised proposal at its next meet 201321, and
recommended the Jet-Etihad Transaction for approve Committee on Economic Affairs
("CCEA")22, subject to the follows;

i. prior Government approval would be required for any change or for any
change in Jet's shareholding structure;
ii. all shareholder disputes under the SHA would be adjudicate law (earlier it was
proposed to be English law); and
iii. Jet would submit new Articles of Association before t before Finance Minister
for approval and then to the CCEA The CCEA approved the Jet-Etihad
Transaction

(b) CCI approval

Since the Jet-Etihad Transaction qualified as a combination u Competition Act, Jet filed for
the approval of the CCI under the Competition Commission of India, The CCI, in its order
dated November 12, 2013, approved the Jet Transaction as it was not likely to have an
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appreciable adverse effect on competition in India. In the order, the CCI considered the
question of whether Etihad had acquired "joint control" over Jet pursuant to the Jet-Etihad
Transaction in order to deter- mine the applicability of the exemption from notification
requirements28. In relation to this matter, the CCI stated in its order that "Etihad 's
acquisition of twenty-four (24) percent equity stake and the right to nominate two (2)
directors, out of the six (6) shareholder directors , including the Vice- Chairman, in the Board
of Directors of Jet, is considered as significant in terms of Etihad's ability to participate in the
managerial affairs of Jet ... The effect of these agreements including the governance structure
envisaged in the CCA establishes Etihad's joint control over Jet, more particularly over the
assets and operations of Jet (emphasis supplied). Accordingly, the CCI found that the
combination, combined with the governance structure set out in the CCA, gave Etihad "joint
control" over Jet for the purposes of the Competition Act.

(d) SEBI review

Based on the CCI's observation on control, SEBI reviewed the Jet-Etihad Transaction in
order to determine if the requirement to make an open offer had been triggered. In its order
dated May 8, 2014, SEBI concluded that Etihad had not acquired "control" over Jet for the
purposes of the Takeover Code.

In its order, SEBI inter alia observed that the definition of 'control' under Section 5 of the
Competition Act is "much wider" than that under Regulation 2(l)(e) of the Takeover Code.
Further, the SEBI order states that one regulatory agency may be guided by the findings of
other regulatory agency on a particular issue only if the two laws are pari materia in their
substance and are being applied on the same set of facts and circumstance. This finding was
supported by the other regulators who were corresponding wit regard.9

In its order, SEBI noted that the FIPB had approved the Jet-Etihad Transaction as being in
conformity with the FDI Policy, i.e., the 'effective control' of Jet was vested in Indian
nationals and not with Etihad. SEBI also noted that:

i. Etihad had a right to nominate only two out of 12 directors on Jet's board, as
compared to Jet's promoters' right to appoint four directors, including the
chairman, who has a casting vote;

9
Paragraphs 11 and 15 of the SEBI Order
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ii. Etihad did not have any veto or affirmative voting rights, or any quorum rights at
the board or general meeting;
iii. Etihad did not have pre-emptive or tag along rights; and
iv. The parties to the Jet-Etihad Transaction had voluntarily modified/ deleted the
provisions of the CCA, which were the subject of the CCI's observation on
control, to reiterate that effective control of Jet vests in Indian nationals and that
Etihad had not acquired control. These changes included
a. removal of Etihad's right to recommend candidates for senior management in
Jet;
b. requiring approval from the board of Jet and Etihad for areas of co-operation
listed in the agreement, and also any co-operative/collaborative arrangements;
c. removing Abu Dhabi as an exclusive hub for Jet flights to Africa, North
America, South America and UAE; and
d. deleting the mechanism for Governance Procedure and Deadlock Procedure as
set out in the CCA.

Ratio decendi
Based on the above, SEBI concluded that Etihad had not acquired control over Jet for the
purposes of the Takeover Code, and Etihad was not required to make an open offer. With this
order, SEBI finally put an end to the regulatory uncertainty surrounding the Jet-Etihad
Transaction since no further approvals were required.

V. CONCLUSION
Based on the above, it is clear that "control" can have different under different legislations.
This is illustrated by the Jet-Etihad T where the CCI found that Etihad had acquired joint
control over Je Competition Act, but SEBI found that the same transaction did not acquisition
of control under the Takeover Code (although the CCA w after the CCI's approval but before
SEBI review.

The rulings of the CCI and SEBI in relation to the Jet-Etihad Transaction demonstrate that
the threshold for "control" under the Competition Act than under the Takeover Code. This
may be based on the different ob the legislations in question: while the Competition Act
seeks to regulate actions which could potentially affect the strategic commercial behave
enterprise (or confer a particular degree of influence over such behave Takeover Code
considers the acquisition of control as an event which require that other shareholders of a
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listed company be provided an opportunity sell their shares due to such change in control
over their company. Apart from the differing levels of control under the Competition Act
Takeover Code, the orders referred to in this article also indicate certain differences between
what may constitute control under the Competition Ac Takeover Code: for example, the
CCI's order in the Jet-Etihad Transaction indicates that when considering rights to nominate
directors it will consider in the context of the total shareholder directors only; SEBI also took
into the independent directors. Also, the CCI's jurisprudence generally accepts
affirmative/veto rights in relation to the strategic commercial decisions company indicate a
level of control; the position on this point under the Code remains unsettled. Further rulings
of the regulators in question appellate authorities and courts may be expected to develop
these ideas fu In relation to the multiple regulatory loops the Jet-Etihad Transaction with the
FIPB, SEBI and the CCI, while such regulatory over-lap may raise red flags for foreign
investors considering investments in India resolution, although overdue, appears to be
satisfactory. Based on the relevant regulators and publicly available information, the
regulators in the Jet-Etihad Transaction approval process appeared to have co-ordinate each
other while considering the issues relevant to each. Further, they co the views of other
regulators when considering issues under their purview The regulators also took into account
the different substantive connotation 'control' that are relevant to the regulations that each
regulator is response and in doing so, successfully steered away from the 'one-size-fits-all'
appr Given that this Jet-Etihad Transaction was the first of its kind, one maintain hopes for a
more expeditious and stream-lined approach in the f regulators become increasingly aware of
the jurisprudence of other r perhaps more harmonious procedures could be implemented with
a view to positively impact transaction timelines.

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