Brazil’s GOL Acquires Downtrodden Varig

GOL, Brazil’s low-cost airline, has agreed with VarigLog and Volo, the controlling shareholders of VRG Linhas Aereas S.A. (Varig), to acquire the total share capital of the air carrier.

The total consideration offered for the shares of VRG is approximately $275 million, consisting of $98 million of cash (representing less than 10 percent of GOL’s total cash), and approximately 6.1 million non-voting (PN) shares issued by GOL (representing approximately 3.2 percent of GOL’s total shares), with various sale restrictions for up to 30 months.

With the assumption of $45 million of debentures, the total aggregate value of the transaction is approximately $320 million.

This closing is conditioned on obtaining all the customary regulatory approvals from the authorities, including the Brazilian Antitrust Agency (CADE) and the National Civil Aviation Agency (ANAC). GOL vowed to keep investors posted on the approvals.

VRG will be acquired by GTI S.A., a wholly-owned subsidiary of GOL Linhas Aereas Inteligentes. The companies will keep separate financials and will be managed according to best practices in corporate governance and internal controls.

VRG will operate with its own brand (VARIG), differentiated services, incorporating the low-cost business model from GOL, and independent administration, separate from GOL’s operating subsidiary GOL Transportes Aereos S.A, which will continue to invest in its unique low-cost operating model.

GOL and VRG will be managed as independent companies with focused business models. GOL will maintain focus on its low-cost, low-fare business model, with a single-class of service in the Brazilian domestic market and South America.

The combined strength of GOL and VARIG will establish a Brazilian airline group with a growing passenger base of over 20 million annually, capable of competing on the South American and world stages against other large international airlines.

GOL believes there are opportunities to max out the purchasing power of the two subsidiaries to further reduce operating costs, increase efficiencies, continue to innovate the Brazilian market for air travel, and pass on the benefits of synergies between the companies to the traveling public.

VARIG will incorporate modern concepts of efficient administration, asset optimization, intensive use of technology, efficient and economic fleet, transparency, innovation and employee motivation, which will make the company competitive, profitable, financially sound, and capable of sustained growth.

VRG’s fleet, currently operating with 17 aircraft, will be increased to 34 Boeing aircraft composed of a simplified fleet of 20 737 and 14 767 aircraft. This fleet will permit VARIG to serve more than ten international destinations in Europe (Frankfurt, London, Madrid, Milan and Paris), North America (Miami, New York and Mexico City), and South America (Buenos Aires, Santiago, Bogotá and Caracas).