Issues & Trends – May 2010
Regulators to scrutinise JTG-Stella merger proposal
AS foreshadowed first in travelBulletin, Jetset Travelworld and Stella Travel Services are proposing to merge, portraying it as a coming together of equal and complementary businesses.
If approved, the planned merger will take private equity company, CVC, and banker, UBS, a further step along the road of recovering the roughly $620 million in debt that they exchanged for equity in Stella.
That private company equity will convert into 45 per cent of a publicly listed company initially valued at about $440 million, providing a much more liquid asset worth about $195 million in publicly tradeable shares. CVC and UBS will, therefore, presumably be anxious to see further growth in the value of the company.
Stella staff, mainly managing director Peter Lacaze, it is believed, will hold shares worth about $18.5 million.
Minority JTG shareholder, the Alysandratos family, will have 12.6 per cent of the merged entity – a holding initially worth about $55 million – while majority JTG shareholder, Qantas, will hold 29 per cent of the merged company.
However the merger proposal will have to pass the scrutiny of a number of regulatory authorities before it becomes reality.
The Australian Consumer and Competition Commission will look at its impact on competition; financial regulators, the Australian Stock Exchange and the Australian Securities and Investment Commission will want to be assured that the interests of small shareholders are protected.
Even the Foreign Investment Review Board will check out the proposal (because of the foreign ownership of CVC and UBS).
The process for achieving the merger will be a protracted one, probably stretching out to September.
Similar to the procedure adopted for the earlier merger of Qantas Holidays and Jetset Travelworld, it will involve an independent accounting company evaluating the proposal and preparing a report for consideration by current JTG shareholders prior to an extraordinary general meeting to vote on the proposal.
The joint JTG-Stella announcement of the proposed merger outlined the planned top management structure: JTG chairman Tom Dery will be chairman of the merged company, managing director will be Peter Lacaze (with JTG chief executive Peter Collins returning to Qantas); and Elizabeth Gaines, currently chief financial officer for Stella will be appointed CFO of the new company.
It is difficult to imagine an executive with a better grasp of the complexities involved in bringing the companies together than Peter Lacaze. The current Stella boss is a former chief executive of both Qantas Holidays and Jetset Tours.
• The powerful concentration of buying power in the merged company could cause some concern to smaller groups particularly in view of JTG chief executive Peter Collins’ statement that the big chains should be putting more pressure on suppliers to ensure boutique groups don’t gain access to the same deals (travelBulletin, December 2009).
But Magellan Travel general manager Andrew Macfarlane said he expected the group would continue to receive support from all major suppliers including Qantas and Qantas Holidays.