View from City Road: Airtours takes a double gamble
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.POKER players would surely relish the intricate thought processes behind yesterday's uninvited move by Airtours for Owners Abroad, its smaller rival in the holiday market.
David Crossland, chairman of Airtours, has made a bold call. He is gambling that the deal will not be referred to the Monopolies and Mergers Commission. He is also testing the financial nerve of LTU, owner of Thomas Cook, and that of recalcitrant shareholders in Owners Abroad who do not want the proposed Thomas Cook link-up.
The MMC is the bigger gamble. Bringing together numbers two and three in most industries would be enough to ring alarm bells at the Office of Fair Trading. In an industry as high-profile as the holiday industry, where the public interest is so close to the surface, the temptation to hold an investigation must be irresistible.
The combined group would initially hold sway over 30 per cent of the tour operating market. Even after removing business overlaps the new company would end up with about a 27 per cent share.
But Airtours is confident that it can, if called upon, persuade the MMC to sanction the deal. It argues that a precedent was set when the authorities cleared Thomson, the market leader, to swallow Horizon, the number three operator, in 1989.
Airtours will also argue that overseas tours account for less than 40 per cent of holidays taken by UK residents. Therefore it would control less than 11 per cent of the overall holiday market.
Those two arguments, however, are not as clear-cut as they look. Horizon, despite its 11 per cent market share, was haemorrhaging cash and was in danger of being closed by its then owner, Bass. Owners Abroad is not going bust.
Since the Horizon deal the industry has largely abandoned all-out price wars, although discounting still plays a large role. The playing field has also shrunk through the demise of International Leisure, several charter airlines and some large regional holiday companies.
If Airtours does get the necessary runway clearance, however, shareholders in Owners are left with two choices - team up with either Airtours or Thomas Cook. In terms of value the offer from Airtours is too low, giving an exit multiple of little more than 9.5 times. Shareholders can do no worse than sit tight, forcing better terms. There is also an outside chance that Thomas Cook might make a counter-offer.
(Photograph omitted)
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments