Twisted Logic Drives Some Deals

By Martin Kelly, Editor, TRAVELtech

Another day, another takeover.

Last week it was Travelport, owned by the avaricious Blackstone Group, which bought Worldspan, a fringe GDS, for US$1.4 billion. It will be merged with the Travelport-owned Galileo – one of the Big Three global distribution travel companies (Sabre and Amadeus are the other two).

This week it was Sabre  Holdings – which apart from the GDS also owns Travelocity. Sabre is being sold to a private equity group that will probably load it with debt (fed by the GDS cash cow) strip out some costs and sell it in a few years.

Then, of course, there was the Qantas board announcement recommending shareholders accept a A$5.60 per share bid valuing the company at A$11 billion from a consortium including the Texas Pacific Group, which is also behind the US$5 billion Sabre acquisition.

It’s like a Monopoly game with real money for these private equity guys, and my head is spinning, especially with the Qantas acquisition. It’s an airline that is hostage to forces beyond its control, especially the oil price, so I can’t see the huge upside its buyers need to make it work. However, I’m loving it as a Qantas shareholder who has seen no genuine share price growth for many years.

Anyway, let’s have a quick look at the other deals, in particular the apparently twisted logic driving the Worldspan-Travelport merger, which goes like this:

GDS revenues are heading south as consumers opt to book direct with airlines, therefore Travelport needs to buy another weakening business to make itself stronger.

In a release that acknowledged “more than half of US travel bookings are already processed through alternative non-GDS channels” Travelport said the merger “builds on the complimentary strengths of our two companies”.

It also “directly addresses industry trends” claimed the grandly-titled Worldspan Chairman, President and CEO, Rakesh Gangwal.

He’s kidding, right? The clear industry trend is not to book through a GDS or a travel agent for that matter and go direct to travel suppliers, in this case the airlines.

Its own release says so, quoting Forrester Research.

But Rakesh, a former CEO of US Airways, can say what he likes.

While this bloke has an ego and more titles than an exiled European royal, he is no fool having just completed a merger that values Worldspan at US$1.4 billion.

The immediate cost savings are a whopping (not) US$50 million as the transaction delivers “financial benefits capitalizing on natural operational synergies” with the merger creating a “leading global travel solution provider”.

As people say as they lose interest and turn away: "Yeah, whatever…"

Anyway, the Sabre acquisition is different in that it comprises old and new travel businesses – the GDS and Travelocity – so it looks like a much better mix: the cash flow of the “old” businesses helping fuel the “new” business.

But like Qantas it’s is still subject to shareholder approval. 

So what will next week or next year bring? More of the same probably. In fact, this may only be the beginning.

December 15, 2006
Copyright TRAVELtech Asia Pacific

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