Flight Centre has fallen to the private equity bug with the leaked $1.6 billion buy out featured on the front page of today’s Australian Financial Review, coming to pass today.
The Brisbane-based company was a stockmarket darling: its shares hit more than $28 each in the middle of 2002 after listing at 95c 11 years ago.
They closed at $13.60 yesterday and jumped today after being relisted with the buyout price announced at $17.20.
Pacific Equity Partners, part of Bain Capital, are the private equity group involved. They are also involved in the buyout attempt of The Warehouse retail chain in New Zealand by founder Steve Trindall. They were also sniffing around Coles Myer and several other deals.
The $17.20 is a premium of 26% to yesterday’s price but also a reflection that the business is no longer what it was when the shares were over $28.
The internet, commission cuts by Qantas in particular, the collapse of Ansett and scares like SARS and terrorism have eroded the earnings capacity of the group.
This has been very frustrating to the founding partners, led by chief executive Graham Turner who was upset by the growing power of the internet and Qantas.
Not helping the company and others in the business has been the growth in oil price surcharges on fares which are loaded onto the price of the airfare, but commissions to the agents are only paid on the fare cost and not the fare and surcharge.
Turner and others have been trying to get the airlines to absorb the surcharges and give the agents an automatic rise in income: to no avail.
It also faces stronger competition from another Brisbane group, S8 which is being taken over by investor and tourism fund manager, MFS.
Flight Centre has more than 1,500 outlets around the world which sell airfares, accommodation and holiday packages to travellers. Management will take a 25% stake as part of the deal with PEP.
It means Flight centre joins the like of PBL and health care group, DCA, in doing deals with cashed-up private equity groups.