Canada’s Fairfax Financial wins auction for Thomas Cook India

Thomas Cook agreed yesterday morning to sell its entire 77% stake in its Indian unit to Fairbridge Capital, a subsidiary of Canada’s Fairfax Financial, for £95 million ($150 million).

The price is equivalent to Rs50 a share, which represents a premium of 11% to the market price on February 7, when the auction became public. Would-be buyers had first approached Thomas Cook in January, with broad interest from both strategic acquirers and financial sponsors in India and overseas.

Bidders are reported to have included private equity funds Carlyle, KKR, TA Associates and Tata Capital, as well as Travelex, a British foreign exchange company.

After completing the deal with Thomas Cook, Fairfax launched a tender offer for the Indian business’s remaining shares yesterday, in accordance with local regulations. It is offering to pay roughly Rs65 a share, which represents a 7% premium to Monday’s closing price of Rs61.20.

Thomas Cook India’s public float could fall below India’s minimum 10% threshold if the offer proves popular with shareholders, which would raise the prospect of delisting the company. It is unclear at the moment whether that will happen.

The company is listed on both the Bombay and National Stock Exchanges. It focuses mainly on foreign exchange, but is also involved in outbound and inbound leisure travel, corporate travel and insurance. It is the country’s biggest integrated foreign exchange and travel services company.

Thomas Cook is selling the business as part of a divestment programme aimed at reducing its debts. The company has also sold off other assets, including a Spanish hotel chain that fetched $96 million in December last year.

Indeed, this is the second time Thomas Cook has sold its Indian business during the past decade. In 2005, it sold its then 60% stake to Dubai Financial for about Rs550 a share, then bought it back again in 2008 for around Rs100 a share. It then took the stake up to 77% through an open offer to shareholders.

Since then, its business has suffered thanks to recessions in the UK and uprisings across the Middle East and North Africa, which affected travel to popular holiday destinations in Egypt, Morocco and Tunisia. The company is almost $1.4 billion in debt and has refinanced three times during the past year.

Michael Healy, a former finance director at First Pacific in Hong Kong, is set to join the company as chief financial officer in June and will be glad to see the company pocketing some cash from the sale.

Although the main aim was clearly to maximise the price, sources close to the deal said that Thomas Cook also wanted to make sure the business went into good hands, and to an owner that had the support of the existing management team.

To minimise disruption, Thomas Cook has granted the new owners a brand licence that will last until 2024. Madhavan Menon, managing director of the Indian unit, has said that the current management team will remain with the company after the sale.

Thomas Cook India had gross assets of Rs9.3 billion and net assets of Rs3.9 billion as at December 31, 2011, and generated net profits of Rs562 million for the 12 months ending December 31, 2011.

Thomas Cook Group was advised by Credit Suisse.