SAO PAULO (Reuters) - Brazilian airline Gol Linhas Aereas Inteligentes SA (GOLL4.SA) made a fresh bid on Monday to take over its lucrative loyalty program, Smiles Fidelidade SA (SMLS3.SA), lifting shares of both.
Smiles jumped around 20% and Gol, the country’s biggest domestic airline, climbed nearly 4% as investors reckoned the more generous offer might convince minority shareholders.
Gol already controls Smiles with a 53% stake and has been trying to buy the rest since October 2018, when it offered minority shareholders a share swap. On Monday, it made a revised offer of both cash and shares, at a premium of about 25% based on Friday closing prices.
The premium has grown as Smiles shares have fallen to near their lowest level in four years. Gol’s first takeover bid had wiped out 40% of the loyalty program’s market cap and its weak 2020 forecasts sent shares tumbling further this month.
“The no-deal situation created a corporate governance misalignment that was a major negative for the loyalty program,” BTG Pactual analyst Renato Mimica told clients in a note.
Gol Chief Financial Officer Richard Lark told analysts in a conference call that the deal does not require regulatory approval and would boost the airline’s earnings per share by 0.40 reais next year.
Under the new proposal, Smiles minority shareholders would receive, between cash and Gol shares, a value about 25% higher than the Friday closing price. Based on a higher valuation of the airline in Gol’s securities filing, Smiles shareholders would receive up to 41.74 reais per share, a 30% premium.
Either way, the offer for Smiles values it well below what it was worth early last year. When Gol first proposed to buy out minority shareholders, Smiles shares were worth 48.26 reais.
That’s partly because Gol has been struggling, having lost some 9 billion reais ($2 billion) since 2008. Gol has not been paying dividends, but Smiles has been paying out to both the airline and minority shareholders.
Gol has also said Smiles’ current level of profitability is unsustainable in the long term.
Gol’s two closest competitors, LATAM Airlines Group (LTM.SN) and Azul SA (AZUL.N), do not have separately listed loyalty programs. LATAM concluded the repurchase of its Multiplus program earlier this year.
Talks between Gol and Smiles over the initial proposed deal collapsed in June.
Reporting by Marcelo Rochabrun; Additional reporting by Paula Laier in Sao Paulo and Jamie McGeever in Brasilia; Editing by Brad Haynes and Steve Orlofsky