* Dufry to cement lead over DFS as largest airport retailer
* To finance buy with 1 bln Sfr share issue, new debt
* Deal price is 10x Nuance's estimated earnings
* Global airport retailing set to jump to $59 bln by 2019
* Shares up more than 8 pct to highest since December
(Writes through with CEO comment, analyst comment, detail)
By Katharina Bart and Chris Vellacott
ZURICH/LONDON, June 4 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
"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
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.
CHANGE OF PLAN
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
organise 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.
($1 = 0.8969 Swiss francs)
(Additional reporting by Emma Thomasson in Berlin; Editing by