| Journal: TWUK | Section: |
| Title: | Issue Date: 17/04/00 |
| Author: | Page Number: 8 |
| Copyright: Other |
Is now the right time to shake on the deal?
In agreement: C&Nwill need to convince the Thomson family to sell their stake in order to close the dealDespite a stand-off between the two companies, Thomson and C&N are still expected to become a new force in European tour operating. Travel Weekly editor Jeremy Skidmore reports
Recent events have underlined the belief in the industry that C&NTouristic will take control of Thomson Travel Group.Nothing’s certain until the fat lady sings but in the week since C&N made its first bid for the UK market leader, there have been no white knights emerging to save Thomson from German control.
And that other German giant, Preussag, scotched rumours that it was considering dumping Thomas Cook and entering a bidding war for Thomson. Preussag chairman Michael Frenzel said Thomson would be a ‘very expensive’ acquisition.
Thomson officially rejected a second bid from C&N of 145p a share. Significantly, however, Thomson said in a statement: “The board has indicated to C&N, in communicating its response, that it would be willing for the two groups’ financial advisors to meet…”
That was an offer for the two companies to get together around a table and try to thrash out a price which is agreeable to both. Although the first round of talks didn’t achieve much, there will surely be more.
When C&N started its approach to Thomson, the German group knew that its original bid of 130p a share would never be accepted. When you want to buy a house, you don’t start off by offering the very most you can afford.
City analysts believe Thomson will go at over 155p but less than its float price of 170p. C&N has already taken a share of nearly 5% of the operator and is determined to make a full acquisition.
One thing that could scupper the deal is Thomson’s greed. Thomson’s management are rightly trying to get the best deal for shareholders but if they demand too much, C&N could back off and even turn its attention to First Choice.
The Germans are thought to be unwilling to enter a bidding war, particularly as Thomson’s ownership is thinly spread and C&N would have to convince a large number of shareholders.
C&Nneeds to win over the Thomson family, which owns nearly 23% of the company.
But as the family got £1.4bn when it floated 80% of the company two years ago – far more than it originally hoped for – it seems reasonable to assume they could be convinced to pocket around £300m for their share. After all, it could take the current management team several years to get the share price anywhere near 160p.
New chief executive Charles Gurassa will have unwittingly done a good job by seeing the share price virtually double in the short time he has been there. Gurassa will also do very nicely out of it. In December he was granted 1.6m share options redeemable at £1 per share. That means that if the company is sold for 160p a share, he’ll get a one-off bonus of £960,000. That’s on top of his annual basic salary of £400,000 plus a minimum guaranteed bonus of £240,000. Of course, you can’t blame Gurassa for that. His job is simply to get the best deal for shareholders, it’s just that he happens to be one.
Of course, a C&N/Thomson deal will make sense for both companies. The major game now is all about securing accommodation in resort and this new European giant will have huge muscle when it comes to negotiating deals with Mediterranean hoteliers.
Over time, smaller players will be squeezed out, leading to less consumer choice. Although the market is very competitive, further consolidation could change that position.
City certain Preussag deal is a non-starter
City analysts have rubbished suggestions that Thomas Cook parent Preussag will bid for First Choice in response to the C&NTouristic bid for Thomson.At its annual general meeting, Preussag admitted its market-leading position in Germany was under threat and it was determined to fight to remain number one.
But Preussag would fall foul of the European Union Competition Commission if it tried to add First Choice to its portfolio.
“If Preussag bought First Choice it would have to offload Thomas Cook, which does not make any sense,” said one analyst. “Last year, the European Union blocked Airtours’ bid for First Choice so it is not going to allow one company to own Thomas Cook and First Choice.”
Another analyst added:”Preussag wants to remain the market leader in Europe and has money to buy other companies but it cannot buy another big player in the UK.”