UK. Bidding for World Duty Free, the BAA-owned travel retailer put up for sale in December, is due to close in mid January.
Intense interest is being shown in the acquisition, not surprisingly since World Duty Free holds the contracts at London Heathrow Airport – one of the world’s biggest duty free sales locations – as well as Gatwick, Stansted, and Southampton airports in England and Glasgow, Edinburgh and Aberdeen airports in Scotland.
Details of the RFP have not been released, but the terms are certain to be closely related to the recommendations of the Civil Aviation Authority (CAA) stemming from its 2007 investigation into price controls at Heathrow and Gatwick airports.
The CAA spelled out a number of proposals (accepted by BAA) relating to a sale of World Duty Free. It said the retail contract terms at BAA’s seven airports should be “no more” than 12 years; and that the average concession fee as a percentage of gross sales should be “no lower than 31%”.
As previously noted, the new owner could be a trade buyer, a private equity group, World Duty Free senior management or a combination of these parties. Autogrill (parent of HMSHost and Alpha Airports Group, and co-parent of Aldeasa), Dufry and Lagardère Services (which has just announced it is to divest the Virgin/Furet Du Nord Group to Butler Capital Partners), the parent company of Aelia and HDS Retail, are all reliably understood to be in the running.
Trade buyers tend to have an innate advantage in divestments of this nature because of their available synergies, though private equity can create them by targeting further acquisitions down the line.
A number of private equity groups such as Bridgepoint, Permira, CVC Cinven, 3i and Warburg Pincus have been cited in various reports as being interested, while investment banks are also evaluating the opportunity. The Daily Telegraph quoted a source saying: “With a 12-year lease you can run the business for three years before selling it on, which is the private equity model.”
World Duty Free’s latest declared annual sales are reported to have been £440 million (US$867 million) with pre-tax profits of £30 million (US$59.1 million). Its revenues for the nine months to 30 September 2007 rose +7.7% year-on-year to reach £306 million (US$603 million at current exchange rates). Operating profit on that figure was £21 million (US$41.4 million), up by +11.6%, while net retail income from World Duty Free to BAA rose +9.2% year-on-year for the period to £122 million (US$240 million at current exchange rates).
Any valuation is heavily dependent on the precise structuring of the sale but analysts are generally suggesting a price of £450 million (US$887 million) upwards. But potential synergies to trade buyers could push the valuations much higher, perhaps upwards of £500 million (US$985 million).
For a full background on the likely structuring of any sale in light of the CAA report, click here.
