MFS pitches for Tourism Holdings

Shares in Tourism Holdings, the operator of Waitomo Glowworm Caves and Kelly Tarlton, rocketed 21% on the back of a $277 million Australian takeover bid and speculation a rival suitor was emerging.

Reports from New Zealand say that MFS Living and Leisure Group offered $2.80 a share for Tourism Holdings yesterday, with the company’s shares surgeing 47 cents to $2.74.

First NZ Capital analyst Jason Familton said the offer was 27% higher than his valuation of $2.20 a share for Tourism Holdings and that normally, a premium of 20% to 30% was reasonable.

The offer price could be cut however, by the value of any special dividend Tourism Holdings declares before MFS L&L’s offer closes.

Tourism Holdings’ CEO Trevor Hall, acknowledged a special dividend was under consideration with MFS L&L chief executive Marshall Vann said the takeover would double his firm’s size, with the combined group able to cut costs by about A$2 million (NZ$2.23 million) by having one listed company and one board instead of two.

Mr Vann said the deal, which he aimed to complete in September, would boost MFS L&L’s 2008 shareholder distributions by about 10%.

Paul Robertshawe, Equities Fund Manager at 4.95% shareholder Tower Asset Management, said: “The price doesn’t look super-generous but it’s probably a good opening shot that we will consider.”

He believed there was a good chance of a rival offer because Tourism Holdings had big, albeit volatile, cashflows.

Mr Familton also believed a counter bid was possible. “You can’t rule it out but I wouldn’t necessarily say there’s going to be one.”

Tourism Holdings’ board will back MFS L&L’s bid unless a rival, better offer emerges though this is subject to an independent expert’s report, due on May 21.

The Kiwi firm, which has net debt of $90 million, has agreed not to solicit, initiate or encourage another offer. Mr Hall, at Tourism Holdings’ helm for 10 months, denied it was a sign of a lack of ambition to agree to a takeover bid from a similar-sized rival, which is borrowing about A$190 million to help fund its offer.

“I don’t think as an organisation that we lack courage or that we lacked a strategy. Obviously MFS L&L has had a look at that and they like both,” he said.

Such a debate branched into the contrasting size of the capital markets in New Zealand and Australia, Mr Hall said.

The bid is subject to Overseas Investment Office approval, the backing of 90% of Tourism Holdings’ shareholders and no material adverse change in Tourism Holdings’ performance.

Mr Hall said investment office approval was needed because Tourism Holdings operated in sensitive environments such as the Waitomo Caves and Milford Sound but did not own them.

To reach the 90% threshold and compulsorily acquire the remaining shares and delist Tourism Holdings, MFS L&L needs to win over a group of American investors, this group, including Drake Associates, Sterling Grace Capital Management, Cabin Interiors and Aviation Services, holding 17%.

Mr Vann said MFS L&L had not bought any shares on market, neither had it talked to any Tourism Holdings shareholders, adding, “We’re a logical owner for that business and we think it’s a cash deal which has a great chance of success, adding, the present intention was to retain all of Tourism Holdings’ staff and management.

MFS L&L’s offer emerged after Tourism Holdings approached it as a potential buyer of its attractions and coaching assets.

Report by The Mole