Gategroup’s board has accepted a surprise CHF53 per share offer from the
private Chinese aviation and tourism company HNA. The deal makes
strategic sense, we believe. However, despite a 38% premium to the 60-
day average, we note shares have been depressed by uncertainty
regarding shareholder activism, and shareholders could hold out for a
higher offer of CHF60-70 per share. Prospectus seen published on 11 May.
Board accepts CHF53 per share takeover by China’s HNA
Gategroup’s board has accepted a CHF53 per share takeover offer from
China’s HNA, a private company specialising in aviation and tourism with
CHF29bn in revenues. The all-cash offer represents a 38% premium to the
average trading price for the last 60 days. HNA is committed to
Gategroup’s Gateway 2020 strategy, and it will operate autonomously and
remain headquartered in Switzerland under current management.
Offer looks low at <8x EV/EBITDA, <13x P/E 2017E
We believe the offer looks low at <8x EV/EBITDA and <13x P/E 2017E.
Gategroup is in the middle of what looks like a successful turnaround
strategy, and we believe it is evolving into a growth case after struggling
for many years as much of the airline industry has gone no frills. As a result,
we believe that a fairer value could be CHF60-70 (between <9x
EV/EBITDA <15x P/E and <10x EV/EBITDA <17x P/E).
Shareholders could hold out for higher bid
While working under an Asian partner makes sense, as likely future growth
in the industry will be centred on the region, we believe that shareholders
could hold out for a higher bid. The public tender offer is subject to a
minimum 67% acceptance and approval of all regulatory authorities. HNA
is expected to publish a prospectus
(www.hnagroup.com/en/discl/HNA_Website/legal.html) on 11 May with
the main offer expected on or around 27 May, ending on or around 23
June, followed by an additional acceptance period seen starting 30 June
and ending 13 July. Gategroup’s AGM will still go ahead on 14 April, and
Q1 results will be published 19 May.