Divestment of Changi International Airport Services by Temasek Holdings

• Main Authors: FAN, Terence P. C., KIM, Changhyun, KOH, Chaik Ming
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Corporate finance; Cash flow; Financial analysis; Financial strategy; Mergers & acquisitions; Valuation; Asian Studies; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/cases_coll_all/224; https://cmp.smu.edu.sg/case/3626
• Institution: Singapore Management University

In May 2004, Temasek Holdings (Temasek) initiates the divestment of Changi International Airport Services (CIAS), following the issuance of a third ground handling license to Swissport. Since its inception in 1977, CIAS had built a reputation of a successful and competitive operator at Changi Airport, despite having a competitive incumbent like Singapore Airport Terminal Services (SATS), which had almost 80% market share. Should Temasek sell its stake just because there is going to be a new player in the industry? The long-standing senior management team at CIAS will be key to the divestment process – Temasek would be relying on them and their team to produce financial forecasts for the potential bidders to estimate the price they would pay for this business. However, could the current management be replaced by the new owner? What motivation would be senior management team have to help sell the company and potentially end their career at CIAS? With Temasek divesting their stake, would the other shareholders – Air France, KLM, Lufthansa, China Airlines and Garuda – also follow suit? If so, how would that change the dynamics of their relationships with these airlines, and would they cease to be customers after exiting from the business? Through this case, students will: (1) Debate if Temasek should be divesting CIAS and explain the rationale behind active portfolio management; (2) Discuss what would be the divestment process design to maximise the proceeds of the divestment; (3) Evaluate ways to mitigate potential agency issues with the management team during the divestment process, and (4) Design the deal structure (in whole or in parts, and in what parts) and estimate the value of the proceeds, including techniques to create tension in the deal transactions to maximise the value of the sale.