Indian travel services firm Cox & Kings Ltd is acquiring European holiday specialist Holidaybreak Plc., in a deal valued at £312 million or $510 million (Rs 2,260 crore). Cox & Kings has made an offer for the shareholders of Holidaybreak in what will be the biggest overseas deal in the travel services industry.

Holidaybreak is nearly seven times as large as Cox & Kings in terms of revenues and the acquisition price is only 15 per cent shy of Rs 2,633.77 crore, its closing market cap on Wednesday (July 27).

The offer for the company has been made through Prometheon Holdings (UK) Ltd, a wholly owned subsidiary of Cox & Kings, for 100 per cent stake in Holidaybreak. The offer for the London Stock Exchange-listed firm has been made at 432.1 pence in cash, 35.5 per cent premium to Holidaybreak’s closing price on July 22 (after which the news of the transaction came). The deal is expected to close by September 27.

Founded in 1973, Holidaybreak is based in Northwich (UK) and has been increasingly focusing on its educational travel business. It also has businesses across camping (brands like Eurocamp and Keycamp), adventure holiday space (Explore) and the Hotel Breaks division (Superbreak and Bookit). The deal is being seen as a complementary move for the 250-year old Cox & Kings and will help it diversify its revenues across products and geographies. Cox & Kings will also be able to bring Holidaybreak’s niche products like outdoor education programmes to India and other markets.

After slipping 2.38 per cent on Wednesday, the share price of Cox & Kings jumped 4.43 per cent on Thursday was trading at Rs 196.05, up by 1.61 per cent at 12:18 pm. This could be due to the size of the deal, besides Holidaybreak’s debt size and recent losses.

The deal has been recommended by the Board of Holidaybreak, and Cox & Kings also has the support of major shareholders, representing 31.8 per cent stake in the former. While 17.1 per cent have given irrevocable undertaking to vote in favour of the deal, the remaining 14.7 per cent have also given non-binding letters of intent. The buyout, which is being done through a court-sanctioned scheme of arrangement, will require the approval of 75 per cent of Holidaybreak’s shareholders.

“The acquisition of Holidaybreak marks an exciting new step for Cox & Kings in its development. We have been growing rapidly and we have also significantly expanded our outbound tours operation from India and Oceania. Holidaybreak adds new product areas and markets which provide us with attractive opportunities to leverage Cox and Kings’ global network and accelerate the development of both Holidaybreak and Cox & Kings’ businesses,” said Peter Kerkar, director of Cox & Kings.

“I am proud of the significant progress we have made towards our objective of transforming Holidaybreak into an education-focused business, both through expansion into the pan-European education market through the acquisition of Meininger, and by building on our high quality brands,” said  Martin Davies, group chief executive of Holidaybreak.

Financing The Deal

Cox & Kings is financing the deal through £125 million in equity and the remaining through debt. It is getting two standby letters of credit facility of £206 million ($337 million or Rs 1496 crore) and £125 million ($205 million or Rs 908 crore) from Axis Bank to finance the deal.

In April this year, Cox & Kings’ Board had said that it might raise up to Rs 1,500 crore through issue of shares/convertible instruments, besides raising the borrowing power of the firm from Rs 1,000 crore to Rs 1,500 crore.

The firm has also got the nod from FIPB, the nodal body monitoring foreign investment in India, to bring in FDI worth Rs 750 crore.

According to a June research report by KJMC, Cox & Kings has raised Rs 1,200 crore during the last one year for acquisitions and currently has a total debt/equity ratio of 0.7. It has a total debt of Rs 844 crore in FY11.

Nomura is advising Cox Kings on the transaction.

Revenue Break-Up

While Holidaybreak is six-seven times larger than Cox & Kings in terms of revenues, it also has a large debt and reported a loss after tax of £19.2 million ($31.5 million or Rs 140 crore) for the first quarter of the current fiscal (Holidaybreak follows October-to-September calendar year).

For the year ending September 30, 2010, Holidaybreak reported revenue of £461.7 million ($764 million or Rs 3392 crore) and profit before tax of £26 million ($42.52 million or Rs 189 crore). As of March 31, 2011, Holidaybreak had net debt of £137.9 million ($225 million or Rs 1000 crore).

Holidaybreak’s education division, which provides residential outdoor education and adventure trips for school children, was the most profitable in 2010, with revenues of £121.1 million. Last year, the company also picked up 50 per cent stake in Meininger, a German school trip accommodation provider. The Hotel Breaks unit had revenues of £135.8 million; the camping division earned £107.4 million while the adventure sports garnered £97.4 million.

Cox & Kings had reported 24 per cent increase in revenues to Rs 496.75 crore in FY11, with EBITDA rising 23.4 per cent to Rs 230 crore. But the profit after tax fell by 9 per cent to Rs 121.8 crore. However, its India operations accounted for 48 per cent of the company revenues in FY11, increasing from 44 per cent posted in the previous fiscal. Travel and tour commission accounts for 91 per cent of the revenues of Cox & Kings. It also provides travel-related foreign exchange and payment solutions.

Cox & Kings is one of the world’s oldest travel services brands, established in 1758 to serve the British regiments. It was sold to Lloyds Bank in the 1920s and was later acquired by the Grindlays Bank. After a change in British banking regulations, Grindlays had to sell off non-banking interests, and a partnership between Ajit Kerkar and Anthony Good bought Cox & Kings.

Cox & Kings was listed on the bourses in 2009 in a Rs 610 crore IPO and had also raised equity funding from Deutsche Securities, Lehman Brothers and Merrill Lynch in 2006.

It has also recently teamed up with other shareholders of the privately held US-based travel management firm Radius,to pump in fresh capital in a multi-million dollar recapitalisation deal.

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