Thursday, April 19, 2007

Who needs actual Sahara?? The Indian Cricket Team or Jet Airways??

Hi friends,

At last! The deal went through! Jet Airways has now officially taken over Sahara!! The deal finally went through after so much drama from both sides!!

But I feel this is a wrong time to take over Sahara... not in any economic sense, but in the sense of Indian Cricket! After-all, Sahara is the official sponsor of the Indian Cricket team and presently, no one would like to be associated with Indian Cricket atleast for a few months after our WC debacle! The Indian crash was far more greater in magnitude than even the crash of the Sensex that the BSE experienced a few days ago. It seems that Sahara must change their tagline to suit to the needs of the Indian Cricket Team to - "Bharat Hai Hamara, Hame Chahiye Sahara"

There was one finance related term that I learnt thanks to this deal - An escrow account! The definition of an escrow account is as follows:

"An escrow account is a special savings account that's set up when you take out a mortgage. The money in the account (or accounts) covers your estimated real estate taxes and home insurance when they come due."

"An escrow account is a fund established to hold moneys pledged and to be used solely for a designated purpose, typically to pay debt service on an outstanding issue in an advance refunding."

"An escrow account is a trust account held in the borrower's name to pay obligations such as property taxes and insurance premiums."

I know it is confusing for a non-financial person to grasp its meaning, but I also did not know such definitions when I read about it in the newspapers. As per my understanding, whenever any company "A" proposes to take over another company "B", "A" has to deposit a certain amount of premium (money) into a kind-of a joint account of the two parties. This account is called as an Escrow Account. This is counter any losses that the company "B" can make in case "A" suddenly decides not to continue with the proposal of taking over "B". This was prominent in the recent Jet-Sahara deal because "Jet Airways had initially invested around Rs.500 crore into the account meant for the take-over. When it decided later that it would not go ahead with the merger, that money was stuck and Jet did not know how to get it back!

The definition of "Escrow" according to Wikipedia should make things more clear:

"Escrow is a legal arrangement in which an asset (often money, but sometimes other property such as art, a deed of title, website, or software source code) is delivered to a third party (called an escrow agent) to be held in trust pending a contingency or the fulfillment of a condition or conditions in a contract such as payment of a purchase price. Upon that event occurring, the escrow agent will deliver the asset to the proper recipient, otherwise the escrow agent is bound by his or her fiduciary duty to maintain the escrow account."

So by taking over Sahara, Jet has released that money which was stuck up and hence it will pay only the remaining amount to complete the takeover! Cool!

You can read more about the deal at the following links:


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