GOL Linhas Aéreas Inteligentes (GOL), Brazil’s largest airline, has announced the outcome from the selection process for the exchange ratio of common shares, by the shareholders of Smiles Fidelidade (Smiles), subsequent to the corporate reorganization of that company, approved in the extraordinary general meeting of Smiles held on March 24, 2021.
Based on the results of this selection process, GOL said that it had “achieved the best outcome for its stakeholders by minimizing dilution and self-funding the cash consideration with liquidity built-up over time at Smiles”.
The results of the selection process are: 44% of the common shares of Smiles will be exchanged at a ratio of 1 common share of Smiles for: a cash payment of R$5.11; and 0.6601 preferred share of GOL; and 56% of the common shares of Smiles will be exchanged at a ratio of 1 common share of Smiles for: a cash payment of R$18.51; and 0.1650 preferred share of GOL.
As a result, GOL will issue 22.4 million GOLL4 PN shares, representing 5.4% of the company on a fully diluted basis. GOL says that the 5.4% dilution is significantly below the maximum dilution possible of approximately 10% if Smiles shareholders had all selected to receive the Base Exchange Ratio. Due to the 46% lower dilution based on the selection results, GOL expects the transaction will “yield meaningfully higher earnings accretion”.
The total cash consideration to be disbursed by the Company at closing of the corporate reorganization of Smiles, expected on June 23, will be R$744 million. GOL states that the outcome of the selection process has preserved its financial flexibility, and that the company expects to end 2Q21 with around R$4 billion in total liquidity.
“The reintegration of Smiles, the leading loyalty and mileage program in Brazil, to the GOL Group is expected to provide various operational, financial and tax synergies that were not feasible as separate companies, and are estimated to exceed R$400 million per year,” Gol said in a release. “This will be achieved mainly through improvements to revenue management, a more dynamic management of the inventory of seats, unification of marketing initiatives, optimization of yield management and tax efficiencies. Further, the Company believes the reintegration positions the combined entity to maximize value in the post Covid-19 operating environment by increasing market competitiveness and cash flow generation.”
Paulo Kakinoff, CEO, said: “We welcome Smiles’ shareholders to the GOL Group, and emphasize our long-standing commitment to all of our stakeholders in delivering value. We are optimistic that the synergies from this corporate reorganization, and the subsequent benefits to our shareholders, will be realized in a relatively short period of time. GOL also recently shared its outlook for the second half of 2021, as we expect to benefit from a rebound in demand for travel as Brazil’s National Vaccination Program advances.”
Meanwhile, GOL has reported domestic market demand (RPK) for flights increased 519% in May 2021 and supply (ASK) increased by 425%. GOL’s domestic load factor was 88.0% in May, a 13.3 percentage point increase in comparison to May 2020. GOL transported 1.1 million passengers during the month, a 547% increase over May 2020.
GOL did not operate regular international flights during the month of May.