SWITZERLAND/CHINA. Dufry’s share price continued its upward momentum on Friday following HNA Group’s approach to Dufry shareholders GIC and Temasek.
Reliable sources in the investment community have confirmed to The Moodie Davitt Report that the Chinese aviation-to-leisure giant has indeed been in communication with the two Singapore wealth funds regarding their respective shareholdings in Dufry (see table of shareholders below). Dufry’s share price has been on an upward curve since the Wall Street Journal reported news of the approach on Tuesday.
Dufry stock closed yesterday up +2.35% at CHF152.60. That’s a +9.55% gain since close of trading on Monday, hours before the Wall Street Journal report broke, when the stock stood at CHF139.30.
The two Singaporean funds collectively hold over 16% of Dufry stock. Sources say it is uncertain whether HNA Group has also approached the Qatar Investment Authority, which holds an approximate 6.92% stake.
Dufry has had no communication from HNA, causing uncertainly in the investment community about the Chinese group’s intentions. A hostile takeover would be extremely difficult to achieve given the structure of Dufry’s shareholding and Chinese limitations on foreign investments, and seems unlikely anyway given HNA’s deal-making history (see chronology below).
Sources believe a likelier scenario is that HNA is seeking to extend its presence in the travel services chain with a position of significant influence in the world’s largest travel retail company. Such a position would have the additional benefit of making it ultra-difficult for any other outside party to gain control of Dufry in future.
Sources believe that the Singaporean funds will divest their respective holdings provided HNA offers a suitable premium, as seems likely. Both funds took their positions in Dufry to underpin the latter’s acquisition of World Duty Free in 2015. They would have come in at around CHF125-130. An exit at a +20-30% premium to the current lofty share price would represent a highly attractive return on investment for both parties.
“For the investors it’s just a matter of price,” noted one source. “If they [HNA] have put on the table a price that is significantly higher than the current share price – which is already one of the highest-ever for the company – then that’s a very good return. They are purely financial investors – they are not here because it’s a strategic move.”
Friday’s closing price neared the company’s 52-week high (CHF156.70 on 15 March), a long way off the 52-week low of CHF105.10 posted on 2 August 2016.
Theoretically the funds could wait one or two quarters, in anticipation of an even higher return as Dufry’s performance continues to improve in a generally better trading climate. But certainty of return would make a deal now more likely. One informed source said, “On any transaction, the only way you can confirm your investment is when you have the cheque. I don’t think any of these institutional shareholders, if they have a significant return now, will wait.”
As reported, HNA Group must make a public disclosure once it reaches a 3% holding.
The Swiss take-over code means that a mandatory offer for the whole company is not triggered unless a stake larger than 33.33% changes hands.
HNA ACQUISITION TRAIL
Chinese conglomerate HNA Group has been very active in recent times in making acquisitions across its fields of interest with aviation and aviation-related services central to the expansion. Here is a selected timeline of some of its main deals:
- December 2016: As reported, HNA completes acquisition of gategroup, the Swiss inflight services provider, in a transaction valued at CHF1.4 billion (US$1.47 billion).
- December 2016: Completes acquisition of IT products and services company Ingram Micro through subsidiary Tianjin Tianhai Investment Company. The all-cash transaction is for US$38.90 per share with an equity value of approximately US$6 billion.
- December 2016: Closes deal to acquire Carlson Hotels through subsidiary HNA Tourism Group. Also acquires Carlson’s 51.3% stake in Brussels-based Rezidor Hotel Group.
- October 2016: China Duty Free Group parent company China International Travel Service votes at its board meeting on 28 October to create a joint venturewith Hainan Duty Free.
- October 2016: Announces intention to purchase a quarter of Hilton Worldwide Holdings Inc. for US$6.5 billion.
- October 2016: Buys CIT Group’s aircraft leasing business for US$10 billion.
- May 2016: Agrees to purchase 13% of Virgin Australia for US$114 million, with plans to raise that stake to about 20%.
- March 2016: Increases stake in Deutsche Bank from 3.04% to 4.76%.
- March 2016: Acquires Manhattan’s 245 Park Avenue skyscraper for US$2.21 billion.
- November 2015: Agrees to buy 23.7% stake in Azul Brazilian Airlines for US$450 million through subsidiary Hainan Airlines.
- July 2015: Agrees to buy airport luggage handler Swissport International from PAI Partners for US$2.81 billion.
