It was February 4, 2016, the day before the deadline to accept Singapore International Airlines group (SIA)s unconditional offer2 of SG$0.453 for each of Tiger Airways Holdings Limited (Tigerair)s shares. The unconditional offer meant that SIA would purchase all tendered shares even if it failed to secure the 90 per cent necessary to delist the company. It also meant that SIA would not be able to increase its offer price beyond the $0.45 per share.

For long-term minority shareholders of Tigerair who had paid $1.50 per share at the IPO and had stayed loyal throughout the various rights issues, accepting the final offer of $0.45 per share would mean selling at a loss.4 On the other hand, if SIA managed to acquire more than 90 per cent of the shares, Tigerair would be delisted5 and the remaining shareholders would be left with shares which would no longer be easily traded. What should minority shareholders do? Is the buyout offer a fair deal?

TIGERAIR

Tigerair first started operations in 2004. It underwent an initial public offering (IPO) in January 2010, at an offer price of $1.50 per share. When Tigerair was first listed, SIA had a minority share in the company, and limited influence. In late 2014, SIA increased its stake to approximately 55.8 per cent.6

Like many low-cost carriers, Tigerair had been hit by regional overcapacity. However, unlike Malaysias AirAsia and Indonesias Lion Air, which operated out of huge domestic markets that could cushion the impact of overcapacity, Tigerair did not have a similar advantage. This lack had translated into large losses in the past four financial years: losses of $104 million in 2012, $45 million in 2013, $223 million in 2014, and $264 million in 2015.

SIAS INITIAL OFFER

On November 6, 2015, SIA launched a takeover offer for Tigerair at $0.41 in cash per share, a premium of 32 per cent over Tigerairs closing price of $0.31 on November 5, 2015. In addition to the cash component, Tigerairs shareholders were given the option to subscribe for SIA shares at $11.1043 per sharea 0.4 per cent discount compared to their closing price of $11.15 on November 5.

At the time of the offer, SIA was Tigerairs largest shareholder with a stake of 55.8 per cent. SIA confirmed that the intention was to delist and privatize Tigerair. The offer was conditional upon SIA owning more than 90 per cent of Tigerair at the close of the offer period. The offer, which would be funded through SIAs internal cash resources, valued Tigerair at $1.02 billion. Tigerairs shareholders had until December 28, 2015 to accept.

SIAs chief executive officer, Goh Choon Phong, stated, [Tigerairs] success is closely linked to it being part of the SIA Group through our portfolio strategy, in which we have investments in both the full-service and low-cost aspects of the business.7 He added that Tigerair had done well by restructuring to improve its financial position, but its development potential [was] limited without deeper integration with the SIA Group to build a strong foundation for growth over the long term. He explained, We believe our offer to [Tigerairs] shareholders is compelling as a significant premium is being offered, and [we] hope that it will be considered favourably.

However, the president and chief executive officer of the Securities Investors Association, David Gerald, noted that the offer price was 39 per cent lower than what long-term minority shareholders had paid.8 He said, A [Tigerair] shareholder, who held on to IPO shares that were bought for $1.50 a share, and subscribed to all three rights issues since the IPO, would have paid an average of $0.67 a share. Gerald urged Tigerairs board to ensure that minority shareholders received a fair return.

SIAS REVISED OFFER

By the deadline of December 28, 2015, SIA had only managed to secure 74.5 per cent of Tigerair, which was short of the 90 per cent required to delist and privatize the low-cost carrier. Accordingly, SIA extended its offer to January 8, 2016.9

On January 4, 2016, SIA confirmed that it had 77.48 per cent of Tigerairs sharesstill short of the 90 per cent needed. The offer was increased to $0.45 per share, and the deadline further extended to January 22, 2016.10 This offer was a 45 per cent premium to Tigerairs closing price of $0.31 on the day before the takeover bid was announced, and valued the budget airline at approximately $1.125 billion.

Goh said, [Tigerairs] independent financial advisor and independent directors had already recommended that shareholders accept based on the initial offer price of $0.41, which we considered to be compelling, [considering] the significant price premium that was being offered.11 He added that the new offer price would not be revised further: We are optimistic that with this final upward revision of the offer price, those shareholders who have not already accepted the offer will consider it favourably.

According to the Securities Investors Association Singapore, some shareholders were not satisfied with the improved offer because it was still below what long-time shareholders had paid. The association acknowledged that shareholders had the option not to accept the offer, but cautioned that if SIA managed to achieve over 90 per cent, Tigerair would no longer be listed, and shareholders would find it difficult to sell their shares. Under the Singapore code on take-overs and mergers, investors would have an additional three months to tender the shares, and SIA would have to honour the original offer price.12

THE OFFER BECOMES UNCONDITIONAL

As of January 8, 2016, SIA had acquired 79.22 per cent of the shares of Tigerair. On January 11, 2016, SIA announced a further extension of the deadline to February 5, 2016, and changed the offer from conditional to unconditional.

Goh addressed Tigerairs shareholders:

We wish to thank . . . shareholders who have already accepted the offer. With the offer being declared unconditional, we are providing certainty that these shareholders will be paid the final offer price of $0.45 for their shares within 10 days. Shareholders who accept the offer from today up to the closing date will also receive payment at this final offer price, and be granted the option to subscribe within 10 days of tendering their acceptance.13

VALUATION

Based on Tigerairs past financial performance (see Exhibits 1, 2A, and 2B), what would be a reasonable valuation of each of its shares as at February 4, 2016? For a discounted cash flow analysis, some growth projections would be necessary before a reasonable terminal growth rate could be applied in perpetuity. For a dividend discount model valuation, the dividends could be ascertained by applying a payout ratio on the projected net income (see Exhibit 3). Finally, for a relative valuation analysis using peer comparison, data had been collected but a suitable peer group had yet to be identified (see Exhibit 4). The share price performance of Tigerair, from its listing in January 2010, did not compare well with industry peers (see Exhibits 5 and 6).

Please help me answer these questions: please show work also, Whatever for you help me with this:

Should minority shareholders accept SIAs latest offer of $0.45, given that the long-term average price was $0.67 per share? Should the share valuation take into account synergies that might result from the acquisition? Should minority shareholders exercise their right to buy SIA shares at $11.1043?