Online travel agent Webjet has confirmed the purchase of UK-based Jactravel Group (Holdings) for an enterprise value of £200 million (or $A330 million according to a statement to the ASX last night). Webjet says the purchase, which should be completed by the end of this month.
The purchase will be funded by a one for six entitlement issue to big shareholders at $10 a share, and a separate issue to retail shareholders later this month also at $10 a share which is a skinny 9.9% discount to the last sale price of$11.10 on Tuesday.
The company is looking to raise around $A164 million from the issue, while $A145 million will come from existing cash and debt funding.
As well around 2.7 million Webjet shares will be issued to the private equity vendors of Jactravel at $10.94 a share to complete the purchase. That will be equivalent to $29.5 million, or 9% of the purchase price.
Webjet shares went into a trading halt yesterday ahead of announcing an expected major acquisition and major capital raising. The company will return to trade once it has completed the institutional component of the capital raising, or by start of trade tomorrow (Friday).
Webjet said last night that the purchase will see JacTravel join Sunhotels, Lots of Hotels and FIT Ruum’s in its B2B (business to Business) division WebBeds, to become one of the world’s largest B2B travel providers.
JacTravel operates two distinct brands, JacTravel and totalstay.com, both of which will now become part of the WebBeds business. Adding JacTravel to the WebBeds’ will boost Webjet’s annual total transacted volume to over 600 million and will increase the company’s global coverage with offices in 19 countries.
The new company will have over 900 employees and a global portfolio of more than 225,000 hotels, of which 17,000 are directly contracted, in all regions of the globe.
In last night’s statement, Webjet CEO, John Guscic, said that:
"By consolidating with like-minded partners like JacTravel, we believe we will drive even greater synergies that will benefit the wider travel industry. JacTravel is a company we have worked with for many years, and we have the greatest amount of respect for their business. We look forward to working with the JacTravel team in the weeks and months ahead as we integrate our businesses and develop the best possible outcomes for all of our partners and clients.”
Webjet’s shares slipped last week when it revealed it was having an argument with its auditor BDO over how it accounts for transactions linked to tour operator Thomas Cook.
Webjet revealed the disagreement in a statement to the ASX last Friday in which it said it disputed the way its auditors wants Webjet to account for transactions linked to its supply agreement with tour operator Thomas Cook that was signed last year.
Webjet’s board has rejected BDO’s advice and the company says it now expects its end-of-year auditor’s report to come with a qualification. Webjet is due to report its 2016-17 figures on August 31, but this round of fund raising for the deal might see the broad figures released to the market.
Webjet said last Friday that were it to adopt BDO’s proposed accounting treatment, it stood to lose $11.5 million in earnings before interest, taxes, depreciation and amortisation for the year to June 2017.
It would also have to reduce the carrying value of intangible assets by $32.7 million which would need an impairment.
Webjet also said BDO had previously reviewed and approved the company’s accounts for the six months to December 31, 2016, but now the auditor "no longer agrees with the accounting treatment" of the Thomas Cook deal.
"Webjet notes that this technical accounting matter does not in any way change the cash flows or economics of the Thomas Cook arrangements," it said.
The company reaffirmed its full-year earnings guidance of $80 million, saying the guidance was based on BDO’s treatment of its half-year accounts.
Webjet Tuesday’s close of $11.10 was down 12.2% in the past five days, with most of that fall due to the accounting brawl with BDO.
By the way, Webject says that treating the Jactravel purchase under its accounting method for Thomas Cook, the deal will be 25% earnings accretive in fiscal 2017 on a proforma basis with no accounting for any synergies (cost cuts), while using BDO’s method, it will be 35% earnings accretive this financial year.
