Advent merges airport retailers Dufry, Hudson

By Emma Thomasson

ZURICH (Reuters) - Private equity firm Advent International is merging Swiss duty-free retailer Dufry AG (DUFN.S) with its U.S. airport retailer Hudson by means of a share swap that leaves it a majority stake in Dufry.

Under the terms, Dufry will take over Hudson in an all-share deal after having already acquired an 11.2 percent stake in the U.S. company in April.

Hudson is already majority owned by Advent and this stake, together with its existing holding in Dufry, will translate into a 53.6 percent stake in the merged company for the private equity group, which first invested in the Swiss firm in 2004.

The deal will also entail a refinancing of Hudson and Dufry debt, with a five-year committed syndicated facility of about 1.25 billion Swiss francs ($1.13 billion), which Dufry said will give it enough financial flexibility for its growth strategy.

Hudson's portion of the total debt is $390 million, while the total value of Hudson's equity is $446 million.

Advent already had a 37 percent stake in Dufry. After the deal is done, it will directly hold 26.7 percent of the merged entity, while Travel Retail Investments will hold 26.9 percent, reducing the Dufry free float to 46.4 percent.

Dufry shares were down 10.4 percent at 72.55 Swiss francs at 0956 GMT.

The combined group will operate 1,000 shops at 137 airports with a pro forma combined 2007 turnover of about 2.6 billion Swiss francs. Dufry said it expected to realize annual revenue and cost synergies of about 20 million francs within two years.

APPEALING PRICE TAG

Dufry, which operates around 466 duty-free and duty-paid shops in airports and other tourist areas, said in a statement Hudson had turnover of $666 million in 2007 and earnings before interest, tax, depreciation and amortization of $85 million.

Vontobel's Rene Weber said Hudson's enterprise value is $755 million, to give an enterprise value to EBITDA of nine times, an attractive price compared to what catering giant Autogrill (AGL.MI) paid to buy World Duty Free from Ferrovial (FER.MC).

"We appreciate the potential in the internationalization of Hudson, whilst Dufry, with its strong position in the travel retail market, has the ideal set-up for applying Hudson's successful model outside the USA," he said.

"The price tag is also very appealing, but the high dependency on the USA will slow growth at Dufry."

In March, Autogrill spent $1.5 billion on airport retail assets, including World Duty Free, to make it the world's top airport retailer.

"For Dufry, this transaction is a great opportunity to build up a strong position in the duty paid segment which complements Dufry's duty free business at a similar profitability level," said Dufry Chief Executive Julian Diaz.