Tuesday, February 27, 2007

Flight Centre privatisation in trouble

Word on the street (ok - from Travelweekly) is that the privatisation of Flight Centre is in trouble. The billion dollar plus deal was announced in October but is seems that management and the board are not going to get to the magic 75% voting mark to make the deal happen. The article says that it is Lazard Asset Management (28% owner of the company) that is holding out. Chances are they are simply looking for an increase in the bid.

However I would caution anyone against calling the deal dead. The PE firm behind the deal - PEP - are not going to give up too easily and with $400 plus million resting on the deal, the management including Scroo Turner are certainly going to keep fighting. Chances are we will see a revised bid very soon.

That said - this is not a slam dunk must do deal for PEP. I have not done the financial analysis so cannot say for certain if the value is right or wrong. But I do know - and said before- that Flight Centre has not reacted properly to the rise of online travel, to reductions in airline commissions, to changing staff patterns, to the international challenges (especially in the US and UK) or to the need to have more depth and breadth in directly contracted land product. If the deal does go through, PEP will need to address all of those issues

UPDATE - Ouch - Flight Centre stock is down more than 10% as a result of all this.

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