Airport retailer Dufry expands globally with $1.7 billion Nuance buy
ZURICH/LONDON (Reuters) - Swiss travel retailer Dufry is buying rival Nuance for 1.55 billion Swiss francs ($1.7 billion), expanding its presence in Asia and cementing its position as the world's largest duty-free retailer ahead of Hong Kong-based DFS Group.
Basel-based Dufry, whose shares jumped more than 8 percent to their highest since an all-time high set in December, said it would tap shareholders for 1 billion francs and raise another 550 million through debt to finance the deal.
The purchase marks a lucrative exit for private equity group PAI Partners and GECOS - part of Italian retailer GruppoPam - which have jointly owned travel retailer Nuance since a 2011 buyout that valued the company at 676 million francs.
Dufry said it plans to squeeze value from the acquisition by joining up logistics and purchasing with Nuance, targeting up to 70 million from 2016 in benefits from combining the two firms, which run shops catering for tourists around the world.
"The acquisition ... is a transformational deal, not only for Dufry but also for the travel retail industry," said Dufry Chief Executive Julian Diaz.
Dufry will consolidate its market ranking by sales ahead of LVMH-controlled DFS as the world's largest duty-free retailer after the deal, according to estimates from retail consultancy Verdict.
"Dufry is heavily dependent on North America, so it makes sense for them to make such an acquisition to increase their exposure to Europe and Asia," said Verdict analyst Patrick O'Brien.
Global airport retail spend is expected to almost double to $59 billion in 2019 from $36.8 billion in 2014, Verdict predicts, driven by rapid growth in Asia, where more than 350 new airports are set to be built in the next eight years.
The number of outbound Chinese tourists hit 100 million last year and is expected to double by 2020, according to a recent report by brokerage CLSA.
Zurich-based Nuance is far less profitable than Dufry and has suffered from losing a contract to sell in Hong Kong, while a concession in Singapore's Changi Airport ends in October.
A concession for Australia expires in February and may not be renewed if the current terms do not improve during its renegotiating, Dufry said.
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By combining operations, Dufry wants to hike Nuance's margin on core earnings (or EBITDA) from 6.3 percent last year to the more than 14 percent Dufry achieved in 2013.
The deal price implies a valuation of 10 times Nuance's estimated earnings, after stripping out the Australian shops, which is in line with recent transactions, Bank Vontobel analyst Rene Weber said.
The sale marks a change of plan given the sellers had been mulling a stock market flotation of Nuance and sources told Reuters in April its owners had invited banks to pitch to help organize a market listing.
A source close to PAI said on Wednesday that though the owners were considering a flotation, "the door was always open for a trade buyer to come in at the right price."
Nuance is expected to contribute to Dufry's earnings per share from next year, the company said. It flagged 20 million in costs this year and 10 million in 2015 to integrate Nuance, saying it would abandon concessions and close shops if they cannot turn a profit.
For PAI, the sale marks the second disposal by the PAI Europe V fund, following the sale of a stake in IT services firm Atos in November 2013. Dufry will ask shareholders at a meeting on June 26 to approve a share issue for 1 billion francs needed to complete the deal, which represents more than a fifth of its 4.49 billion franc stock market value. Dufry's major shareholder, a fund backed by private equity firm Advent International, has committed to participating in the move, the company said.
Dufry also said a total financing package of 4 billion francs had been fully underwritten, including bridge financing and refinancing some of its debt. Its shares were up 8.2 percent at 157.6 francs by 1010 GMT.
The retailer has been an active acquirer of late. It bet on a revival of tourism in austerity-hit Greece by buying control of Hellenic Duty Free, having completed a slew of deals in South America and a joint venture in Russia.