Corporate Travel Makes Post-Pandemic Plans With North American Buy

Corporate Travel Management has raised the $375 million needed to finance the purchase of US firm Travel & Transport Inc.

Corporate Travel Management shares (CTD) went into a trading halt on Monday ahead of yesterday’s announcement.

CTD will acquire 100% of Omaha-based Travel & Transport for a cash and debt-free enterprise value of about $US200 million (around $A283 million).

Corporate Travel says the fully underwritten entitlement offer will raise $A375 million, and the additional capital will be used to cover costs and may even lead to other acquisitions.

Under the entitlement offer, eligible shareholders will be able to subscribe for 1 fully paid ordinary share for every 4.03 shares they hold on Thursday, October 1, 2020, at the issue price of $13.85 for each new share.

There will be two parts to the issue – an entitlement issue to institutions and a separate issue to retail holders. Morgans and Morgan Stanley are the underwriters.

The offer price represents a discount of 14.3% to its last close price of $16.16.

Travel & Transport services the business sector (like CTD) and derives more than 90% of its earnings in the US and the rest from Europe.

Corporate Travel, which earned around 60% of its revenue from domestic travel within Australia, New Zealand, Europe, and North America before the health crisis, says there is a compelling strategic rationale for the acquisition “with scope for material combination benefits”.

CTD last month posted a small net loss for 2019-20, when it slashed more than 1,000 jobs because of the pandemic, and has not provided an outlook for the current financial year, citing uncertainty around travel restrictions and quarantine requirements.

Corporate Travel says it expects to complete the deal late next month and has been told by the ASX it did not need shareholder approval, even though it is likely to represent a significant change to the scale of its activities.

According to CTD, the deal is expected to be approximately 10% earnings per share accretive on a Pro-forma calendar year 2019 basis (excluding synergies).

When including estimated full run-rate synergies of US$18 million ($A25 million), the transaction is expected to be approximately 30% earnings per share accretive.

Tuesday’s statement from CTD also provided a trading update for itself and its target.

It said that COVID-19 has had a material impact on both companies. Transaction volumes for Corporate Travel Management and Travel & Transport are currently down 25% and 13%, respectively, compared to the prior corresponding period.

Over July and August 2020, the Pro-forma group generated an average revenue of $A14 million per month and an average underlying EBITDA loss of $A5.7 million per month.

Further, the average Pro-forma group cash burn was $A7.5 million a month over the period.

But CTD said it is well-placed to ride out this disruption. Its net cash position after the equity raising will be $A126.8 million, with 100 million pounds ($A181.8 million) of additional liquidity via a committed undrawn finance facility.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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