Switzerland's Dufry to buy majority stake in World Duty Free for $3.8 bn

Switzerland's duty-free shop operator Dufry AG has agreed to buy a 50.1 per cent majority stake in smaller Italian rival  World Duty Free S.p.A, controlled by the prestigious Benetton family for about €1.3 billion, aiming to create the world's biggest travel retailer.

In a brief release Saturday the Swiss retailer said: ''Dufry has entered into a binding agreement to acquire Edizione's 50.1-per cent stake in WDF for €10.25 per share. The transaction values WDF at €3.6 billion ($3.8 billion) and will trigger a mandatory takeover offer for the remaining shares.''

The deal is the second-biggest announced in Italy in less than a week after China National Chemical Corp agreed to buy tire maker Pirelli in a €7.7 billion deal, including debt. (See: ChemChina seals deal to buy Italian tyremaker Pirelli for $7.7 bn)

This is the second deal by Dufry within a year. In June 2014, it acquired local rival Nuance Group for $1.73 billion.

Benetton, through its unlisted holding company Edizione Srl controls WDF. Edizione has substantial investments in textiles, food and beverages and travel retail, infrastructure and mobility services and had a net asset value of €7.4 billion as at the end of 2013.

Edizione, will sell its 50.1 per cent stake in  World Duty Free to Dufry for €10.25 per share, valuing the company at around €3.6 billion ($3.9 billion), including debt of €970 million.

The offer price represents a 22-per cent premium to WDF's average stock price for the last six months, although it is lower than the €11.00 per share estimated by some analysts. The shares ended at €10.96 on Friday on the Italian stock exchange.

Dufry expects to make a tender offer for the remaining shares upon completion of the deal with Edizone.

WDF is one of the major airport retailers operating over 550 duty free shops in 20 countries with leading positions in the UK and Spain and substantial presence in the Middle East, Latin America and the Caribbean.

For the year ended 2014, WDF reported revenue of €2.4 billion and net profit of €42 million. Its net debt stood at around €970 million as at the end of December 2014.

For the December quarter, the company booked a loss of around €32 million, compared to a €20 million profit last year.

Post acquisition, The combined group will become the world's biggest travel retailer with over 2,000 travel retail stores in airports, cruise lines and other tourist spots.

The combined group will hold a 25-per cent market share and annual sales of $9 billion.

It is believed that the Benetton family is giving up its control of WDF to help the company to cope with the rising costs and also give the retailer more bargaining power with suppliers.

Basel-based Dufry, established 150 years ago, is a global travel retailer with presence in 60 countries, and operates over 1,650 outlets in airports, seaports, cruise liners and other tourist locations worldwide. Its shares are listed on the stock exchanges of Switzerland and Brazil.

Through the deal Dufry will become the world's leading travel retailer with an estimated market share of around 25 per cent and annual sales of $9 billion.

Dufry said that it would finance the acquisition through a mix of debt and equity, raised through a rights issue which is underwritten by a group of banks and well-known cornerstone investors.

Quoting some sources, a Reuter's report yesterday stated that Qatar's sovereign wealth fund Qatar Investment Authority (QIA) is partly financing Dufry's acquisition. It is expected that QIA will buy Dufry shares worth €500 million to fund the purchase.

The transaction is expected to close in the third quarter of 2015, subject to approval of Dufry's shareholders of a capital increase to partially fund the deal, as well as other regulatory approvals.

The combination of Dufry and WDF is expected to result in cost synergies to the tune of €80 to €100 million annually, analysts say.

According to some estimates, travel retailing market is expected to swell about 60 per cent to $59 billion in 2019 from $37 billion in 2014

Other bidders for WDF included South Korea's Lotte group China's Sunrise Duty Free and France's Lagardere group.

BofA Merrill Lynch and Mediobanca acted as financial advisors to Edizione on the deal while Dufry was advised by Deutsche Bank.