Sabre's pending acquisition by two private
equity firms positions the GDS holding company to pursue its
objectives and make crucial strategic moves outside of the public
spotlight.
Analysts and insiders
across the board viewed the play last week by Texas Pacific Group
and Silver Lake Partners to buy publicly traded Sabre Holdings for
$5 billion and take it private as the beginning of more wheeling,
dealing and maneuvering, not the culmination.
Observers, too, noted
that Sabre's new financial structure should be viewed apart from
operational issues that affect agencies, at least in the short
term.
While analysts don't
expect agencies to feel an immediate impact if the deal closes,
certainly changes will be afoot.
The new owners likely
will be looking to cut costs, which could result in layoffs and
additional facility consolidations. And as the TPG and Silver Lake
strategy has not been publicly articulated, it remains to be seen
how much priority Sabre will give to new product development and if
enhanced offerings will be rolled out at the same pace they are
today.
Sabre has been on a
campaign to trim costs to offset diminished airline revenue for the
last four years. It addressed the issue of layoffs with employees
on Dec. 11, the day the deal was announced.
Under the heading
"Should we expect layoffs," the company stated, somewhat obliquely:
"As usual, whether public or private, we will continue to make
changes within our company, consistent with our strategy, that help
us serve our customers better and beat the competition."
Sabre: Nothing changes ...
In a "Customer and
Vendor Talking Points" statement filed with the Securities and
Exchange Commission, Sabre said, "While the company is changing
owners, we are not changing what we do. Our relationships with our
customers are extremely important to us, and we will not change nor
do anything to compromise those relationships."
Last week, Sabre
emphasized to employees, agencies and suppliers that nothing had
changed from an operational perspective.
It stated that
executives Sam Gilliland, Tom Klein and Michelle Peluso would
remain in their management posts; headquarters would stay in
Southlake, Texas; contracts would be honored; and salaries and
benefits would stay largely the same for at least one year
following the closing of the sale.
Gilliland, Sabre's
chairman and CEO, explained the move to employees in a series of
e-mails and conference calls.
"There are a number
of benefits to being a privately held company, including greater
flexibility to manage our business and the ability to make
decisions even faster," one e-mail stated. "We can also invest with
a long-term view rather than managing to short-term Wall Street
expectations."
In the talking points
filed with the SEC, Sabre referred to the fact that Amadeus,
Galileo and Worldspan are all controlled by private
companies.
"This transaction
will put us into a similar operating model as other global
distribution system companies, helping us compete better with our
private competitors," Sabre stated.
... Analysts: Don't bet on it
One analyst, who
declined to be identified, argued that the new owners and Sabre
would offer the public relations spin that all was status quo when,
in reality, they would explore every option.
Henry Harteveldt,
principal analyst for travel at Forrester Research, echoed that
sentiment.
"At the end of the
day, Silver Lake Partners and Texas Pacific Group are run by
hard-nosed people, and there are no sacred cows," Harteveldt said.
"With two deep-pocketed owners and Sabre's strong cash position,
Sabre now has a platform to acquire."
PhoCusWright analyst
Douglas Quinby offered a similar view.
"I really don't think
folks at TPG are going to nitpick over operations," Quinby said.
"What they will try and figure out is the best way to extract the
maximum benefit for their own investors. Are there pieces they can
sell? Are there pieces they can spin off? Are there pieces they can
acquire?"
Texas Pacific Group,
with $30 billion in assets, has experience in the travel industry
with prior investments in America West, Continental and Hotwire. It
has a current stake in G2 SwitchWorks and a pending equity position
in Qantas (see story below).
Silver Lake Partners,
which specializes in technology companies, doesn't have any travel
industry investments. Its first will be in Sabre, a company saddled
with a chunk of debt.
The $5 billion that
Silver Lake Partners and Texas Pacific Group agreed to plunk down
includes the assumption of $550 million of debt.
Sabre Holdings, which
includes Sabre Travel Network, the GDS business; Travelocity; and
Sabre Airline Solutions, currently carries $800 million in
long-term debt.
Since some of that
debt will be publicly traded even after the acquisition by the
private equity firms, Sabre will still have to make some public
disclosures about financials.
Moody's Investor
Service said it would review Sabre's bond rating for a possible
downgrade, because the transaction was likely to result in
increased debt.
The end of deal-making? Not likely
If Travelport and
Worldspan close on their proposed merger in the second or third
quarter of 2007, Sabre would find itself displaced as the leader in
GDS market share in the U.S.
One source in the
private equity business mused that he expected more consolidation
could occur. He said that a Sabre-Amadeus deal was a possibility,
although it would face regulatory hurdles, particularly in
Europe.
"It used to be
considered obscene in the private equity business to buy something
and then to merge it with something else within a year, but we have
seen that in other industries," this source said.
The Blackstone Group
is doing just that. Having acquired Travelport in August, it struck
an agreement two weeks ago to merge it with Worldspan.
Observers don't yet
know if there is any significance in the fact that TPG has
investments in both Sabre and its start-up rival, G2
SwitchWorks.
However, one analyst
suggested that the transaction may spur Travelocity "to be less
religious" about eschewing comparative shopping engines, and that
the online agency might begin participating in metasearch services
like SideStep and Kayak.
Travelocity in the
U.S. has shunned travel search engines.
Sabre stated that the
$5 billion deal, at $32.75 per share, offered stockholders a 30%
premium over the average closing price in the 60 trading days
ending Dec. 8.
Assuming that
shareholders and regulators approve the deal, the acquisition is
expected to be completed early in the second quarter of
2007.
It is not contingent
on the buyers obtaining additional financing.
Sabre said that it
considered other offers, and although it is not soliciting
additional offers now, the board could entertain them.
To
contact reporter Dennis Schaal, send e-mail to [email protected].