The Blackstone Groups pending buyout of
Cendants Travelport division -- Galileo, Orbitz and 19 other
businesses -- for about $4.3 billion in cash invites the question:
Whats next?
Blackstone is an
absolute powerhouse in the private equity business, Travelport CEO
Jeff Clarke told TravelWeekly.com. Being aligned with them as our new
owner gives us the ability to take strategic moves in a full range
of opportunities as well as to put money back into the business
without having to hit the quarterly pressure that being a public
company requires.
We believe this
will allow us to take a long-term view to make strategic
investments and to extend our leadership position in the industry,
Clarke added.
Cendant revealed
several days after the Blackstone announcement that Travelport
Inc., which would come into being as a standalone private business
when the transaction closes in August or September, has been
reorganized into two divisions, Orbitz Worldwide and the Business
Group. Managed on a geographic basis, the brands previously fell
under Business-to-Consumer and Business-to-Business/Corporate
umbrellas.
Orbitz Worldwide
includes AoYou.com, Away Network, CheapTickets.com,
eBookers.com,
HotelClub.com, Needahotel.com, Octopus Travel, Orbitz.com, Ratestogo.com and
Travelbag. The Business Group comprises aiRes, Galileo, GTA
(Gullivers Travel Associates), Neat Technology Solution, Orbitz for
Business, Shepherd Systems, Thor, Travelbound, Travelport for
Business, Trust International and WizCom.
Some analysts
expect that Blackstone will shed some of Travelports nonstrategic
assets or pair them with other brands.
Its a no-brainer
for them to talk to the private-equity guys at Worldspan and to put
Galileo and Worldspan
together. That seems pretty obvious, said a source in the
investment community.
He continued, And
then the real upside is some of the other goodies, like Orbitz,
which is probably undervalued and could be spun out as a public
company.
Clarke, who left IT
software management firm Computer Associates on May 1 to join
Chairman Gordon Bethune at Travelport, acknowledged that some
strategic pruning might lie ahead.
We plan to keep the
core part of the business, Clarke said. Obviously, there are very
small parts of the company that you will continue to look at. The
company has [made] over 20 mergers and acquisitions over the last
five years. But well continue to be committed to the major core
areas of the company.
The acquisition by
a Blackstone affiliate clears the way for Cendant to simultaneously
spin off its lodging and real estate businesses, Wyndham and
Realogy, respectively, in mid-July. Proceeds from the Travelport
sale will be used to reduce the debt of the lodging and real estate
businesses to about $750 million and $600 million, respectively,
Cendant said.
Its all part of
Cendants plan, revealed late last year, to carve itself into four
companies.
Its car rental
business, the Avis Budget Group, would be left standing as a public
company once the other parts are gone.
Cendant initially
intended to spin off Travelport into a public company, but later
decided that a sale would be advantageous because the distribution
division was the sole entity that would not face adverse tax
consequences from a buyout, thanks largely to an enormous capital
loss.
The $4.3 billion
Blackstone is paying for Travelport is billions of dollars less
than Cendant paid in its roll-up of travel distribution
acquisitions.
The purchases of
Galileo ($2.9 billion in 2001), CheapTickets ($425 million in
2001), Orbitz ($1.25 billion in 2004), Flairview Travel ($88
million in 2004), eBookers ($350 million in 2005) and Gullivers
Travel Associates ($1.1 billion in 2005) totaled $6.1
billion.
And that list does
not include numerous other acquisitions Cendant made for
Travelport, formerly known as Travel Distribution Services, such as
Travel 2/Travel 4, the Away Network, the Neat Group, a stake in the
CYTS joint venture in China and several Galileo marketing
partners.
Cendant was not
required to disclose the costs of many of those deals because they
were not considered material to the companys financials.
The sale of
Travelport at what appears to be a substantially discounted,
distressed price seems to be yet another example of financial
deal-makers getting burned in the travel industry, said Ron Kurtz,
managing partner of the Management Resource Group in Aventura,
Fla.
Clearly, Cendant
paid too much for the components of Travelport and did not know how
to run them profitably after acquiring them.
In fact, saddled
with a stagnant GDS business, integration challenges and execution
woes, Travelport/Galileo plummeted from the highest EBITDA
(earnings before interest, taxes, depreciation and amortization)
per booking ratio in 2002 to the lowest in 2005 among the four
traditional GDSs.
Cendant
acknowledged last year that its 14 eBookers Web sites in Europe
were unstable, slow and losing money. It took a $425 million
impairment charge tied to the diminished value of Travelports
online businesses.
Lorraine Sileo,
PhoCusWrights vice president of information services, said
Travelports biggest challenge in the online arena is resurrecting
eBookers and increasing Travelports international
presence.
Travelport is
taking steps to right the ship in Europe with an integration
initiative.
Alan Josephs, the
managing director of eBookers, told Travel Weekly on July 6 that
eBookers would relaunch its U.K. site in the fourth quarter, moving
to what would become a common Travelport IT platform. The other 13
eBookers Web sites as well as Orbitz and CheapTickets would
transition to the Travelport platform in 2007, Josephs
said.
That platform goes
beyond a common graphical user interface and extends to back-end
applications, including booking engines, revenue management systems
and merchandising administrative tools.
Getting eBookers
into the black, however, appears to be a protracted effort that
might be easier as a private company without having to deal with
the pressures of quarterly financial reporting, Cendant officials
said.
That leaves Sabre
as the sole public company among the four companies, including
Travelport, Worldspan and Amadeus, that operate a GDS.
That means Sabre
has the challenge of maintaining its competitive position while
having to foot the costs, distractions and disclosures associated
with public ownership.
While Cendant was
clearly in a hurry to sell Travelport, it is not clear whether
Blackstone was the high bidder or other factors were
pivotal.
Clarke termed the
process quite competitive, adding that the decisions you make
whenever you sell a company [are based on] price, certainty and
speed. They accomplished all three of those.
Blackstone, which
formerly employed Cendant Chairman and CEO Henry Silverman, has
been a private equity investor since 1987, managing more than $14
billion.
John Ford,
Blackstones senior vice president of corporate communications, said
the company had a huge lodging portfolio, including Boca Resorts,
Extended Stay America, La Quinta and Wyndham. Last year, Cendant
acquired Wyndhams management and franchise business from Blackstone
for $101 million in cash.
Blackstone is not a
hotel operator, but Ford said that there would be synergies between
Blackstones lodging holdings and Travelport.
Strategically, this
acquisition by a non-travel-related company might pose some
questions to be answered as to how Travelport will be managed, said
Clement Wong, a research analyst at Euromonitor International in
London.
Previous synergies
across the Cendant group may have been lost, Wong said. On the
other hand, this may also free eBookers and Gullivers to be more
accountable to themselves and new owners.
To contact reporter Dennis Schaal, send
e-mail to [email protected]