Flight Centre investors can get cash and an interesting ride.
A report in The Sydney Morning Herald’s Business Day says that it might have been a turbulent year so far for Flight Centre, what with two private equity bids to date, but shareholders at least have a clearer idea as to what they are getting into regarding the joint venture being proposed by Pacific Equity Partners.
Having had its first privatisation plan shot down by rebellious minority shareholders earlier this year, PEP has come back with a second offer, again in conjunction with the company’s founders, led by Graham “Skroo” Turner.
While the latest deal varies significantly from the original proposal in that Flight Centre will sell its business to a privately held joint venture in return for its shareholders owning up to 70% of the new operation, plus getting $1.1 billion in cash, the issue at hand is, in effect, the same as last time.
Basically, it all resolves around the long-term prospects for a company which, after a poor 12 months in 2005 and a hard start to the 2006 financial year, is now basking in the glow of a much better performance as shown by not one but two profit upgrades.
Both of these have, ironically, come since the defeat of PEP’s original plan in February after investors complained the-then $17-a-share deal would have allowed the privateers and founders to snare the company on the cheap.
They are now being offered $16 and possibly as high as $16.50 a share plus an on-going interest in a business which is due to turn in pre-tax profits of around 30% higher than last year.
Notwithstanding the fact that these earnings could easily fall away again (which would be felt even harder by the revamped business given the huge amount of debt it’s about to take on), shareholders at least get a chance to take cash now and also to go along for the ride – however bumpy that might be in regards to future dividends.
Flight Centre’s shares ended yesterday 19c off at $19.55.
Report by The Mole and The Sydney Morning Herald Business Day
John Alwyn-Jones
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