Flight Centre to buy Liberty Travel

MELBOURNE (Reuters) - Australian travel firm Flight Centre Ltd (FLT.AX) said on Monday it has agreed to buy U.S. travel retailer Liberty Travel for $135 million in a deal that will create the United States' 10th largest travel group.

Flight Centre plans to raise A$100 million ($91 million) in an institutional share placement to part fund the acquisition, the company said in a statement.

The placement to be launched on Monday will be led by ABN AMRO Morgans.

Flight Centre shares, which had been suspended, fell 0.7 percent to A$27.04 in a broader market down 0.1 percent.

Flight Centre said the combined business would create the second-largest chain of travel agencies in the United States, with the addition of 193 stores along the East Coast, in Florida and Chicago.

Flight Centre Managing Director Graham Turner said the firm would gain access to an affluent client base and niche products through Liberty.

"The acquisition ... fast-tracks the business's evolution in this key market, as it would have taken years of organic growth and major financial investment to achieve Liberty Travel's results, size and market penetration," Turner said.

Flight Centre also flagged it was not done with acquisitions, saying it plans to review its capital structure to increase debt levels to fund future deals.

The Liberty deal, which is valued at 6.8 times 2007 pro forma earnings before interest, tax, depreciation and amortization, will boost earnings for Flight Centre from 2009.

Flight Centre's founders plan to sell up to 2.6 million shares in the institutional bookbuild, worth up to A$68 million at Monday's share price, without reducing their stake below 50 percent.

Flight Centre, which in July rejected a private equity joint venture with Pacific Equity Partners, said last month it was looking at international acquisition opportunities which may be funded with debt and capital raisings.

At the time, it said it was considering opportunities in Australia, the United Kingdom, United States and India.

The Pacific Equity Partners deal was the second time a PEP-backed restructure had failed this year, after an earlier plan was voted down by institutional shareholders.

The stock has gained 63 percent this year, as the company upgraded its earnings outlook. It expects first-half profit to rise 40 percent, helped by the strong Aussie dollar which is encouraging Australians to travel more overseas.

($1=A$1.10)

(Reporting by Victoria Thieberger; editing by Richard Pullin)