Thomas Cook Regulatory News (TCG)

20 Sep 2007 07:02

Thomas Cook Group PLC20 September 2007 20 September 2007 Thomas Cook Group plc THOMAS COOK GROUP ANNOUNCES THE MERGER OF CONDOR WITH AIR BERLIN Thomas Cook Group plc ("Thomas Cook") today announces that it has reachedagreement on the terms on which Condor Flugdienst GmbH ("Condor") will be mergedwith Air Berlin plc ("Air Berlin"). • the combination of Condor with Air Berlin will create one of the leading low fare airlines in Europe • significant step in realisation of Thomas Cook's asset-light strategy, maximising flexibility and reducing risk • Air Berlin to remain long term strategic partner for Thomas Cook providing Thomas Cook with continued access to flying capacity • expected synergies of at least €70 million per annum by 2010 • expected to be earnings enhancing for Thomas Cook in the year ending 31 October 2009 • Thomas Cook will receive new Air Berlin shares with a value between €380 million and €475 million • in addition, Thomas Cook will receive a cash payment (expected to be approximately €120 million) in respect of surplus cash held in Condor • Thomas Cook to have representation on Air Berlin board as of February 2009 • completion expected in two stages, February 2009 (75.1%) and February 2010 (24.9%) (or earlier) • estimated reduction in net financial debt of €185 million and of pension obligations of €266 million Manny Fontenla-Novoa, Thomas Cook Joint Chief Executive, said: "I am delightedto announce this significant step in the realisation of our asset-lightstrategy, which aims to reduce risk and maximise flexibility and which I amconfident will generate significant value for Thomas Cook shareholders whilesecuring a long-term future for Condor and its people. The combination ofCondor with Air Berlin creates a formidable competitor among German airlines andone of the leading low fare airlines in Europe. As a significant shareholder in Air Berlin we will be able to benefit from thestrong market position, growth potential and the significant synergies expectedfrom the combined group. Air Berlin will remain a long term strategic partnerfor Thomas Cook providing us with continued access to flying capacity and afoothold to launch into the German independent travel market."Enquiries: Thomas Cook Group plc +44 (0)1706 746464Manny Fontenla-Novoa Joint Chief ExecutiveLudger Heuberg Chief Financial OfficerSteven Olivant Investor Relations & Financial Communications Director Brunswick +44 (0)20 7404 5959Fiona AntcliffeConor McClafferty A conference call for analysts will take place today at 08:30 BST (09:30 CET).The dial-in arrangements for the call are as follows: Telephone: +44 (0) 1452 542 400Participant Code: 17200891 A recording of the conference call will be available until 2 October on:Telephone: +44 (0) 1452 55 00 00Access Code - 17200891# Forward Looking Statements This announcement contains forward looking statements that are based on currentexpectations or beliefs, as well as assumptions about future events. Thesestatements are based on the current expectations of the management of ThomasCook and are naturally subject to uncertainty and changes in circumstances.Undue reliance should not be placed on any such statements because, by theirvery nature, they are subject to known and unknown risks and uncertainties andcan be affected by other factors that could cause actual results, and ThomasCook's plans and objectives, to differ materially from those expressed orimplied in the forward looking statements. There are several factors which could cause actual results to differ materiallyfrom those expressed or implied in forward looking statements. Among thefactors that could cause actual results to differ materially from thosedescribed in the forward looking statements are Air Berlin's and Thomas Cook'sability to combine successfully the businesses of Air Berlin and Condor and torealise expected synergies from that combination, changes in the global,political, economic, business, competitive, market and regulatory forces, futureexchange and interest rates, changes in tax rates and future businesscombinations or dispositions. Thomas Cook undertakes no obligation (except as required by the Listing Rulesand the rules of the London Stock Exchange) to revise or update any forwardlooking statement contained in this announcement, regardless of whether thatstatement is affected as a result of new information, future events orotherwise. Thomas Cook Group plc THOMAS COOK GROUP ANNOUNCES THE MERGER OF CONDOR WITH AIR BERLIN 1. Introduction Thomas Cook Group plc ("Thomas Cook ") has reached agreement on the terms onwhich Condor Flugdienst GmbH ("Condor"), its German low fare airline, will bemerged with Air Berlin plc ("Air Berlin") (the "Transaction"). Thomas Cook will receive new Air Berlin ordinary shares with a value between€380 million and €475 million. In addition, Thomas Cook will receive a cashpayment (expected to be approximately €120 million) in respect of surplus cashheld in Condor. 2. Background to and reasons for the Transaction The sale of Condor is in line with Thomas Cook's asset-light strategy, whichaims to reduce risk and maximise flexibility. This combination of Condor withAir Berlin not only creates a leading German low fare airline, one of thelargest low fare airlines in Europe, but also means Thomas Cook will continue tobe provided with the flying capacity it requires. By participating in theconsolidation of the German airline market Condor will ensure it remains costcompetitive against its larger peer airlines. Thomas Cook's business model in Germany is not integrated. Thomas Cook's lowfare airline, Condor, operates independently in the market, and providescapacity on an arm's length basis to Thomas Cook's tour operators. Condor sellsmore than 50% of its capacity to third parties, either to other tour operatorsor to seat only customers. This transaction gives Thomas Cook continued accessto competitively priced aircraft seats. 3. Summary of the Transaction The consideration for the transfer of the Condor shares will be the issue of newAir Berlin ordinary shares with a value at the time of issue between €380million and €475 million (subject to a cash balancing payment if the maximumshareholding provisions described below are triggered). The number of new AirBerlin ordinary shares to be issued to Thomas Cook will depend on the marketprice of the shares at the relevant completion date. Based on the closingmarket price of Air Berlin's ordinary shares of €12.98 per share on 19 September2007 28,172,481 shares would be issued to Thomas Cook, which represent 29.99% ofthe existing issued share capital of Air Berlin and a cash balancing payment of€14,321,192 would be made as a result of the maximum shareholding provision.The consideration also includes a cash element, the amount of which depends onCondor's cash position in the last audited balance sheet prior to the firstcompletion and is expected to be approximately €120 million. As part of the transaction, Thomas Cook will also transfer two aircraft to AirBerlin for consideration approximately equal to the debt retained by Thomas Cookin respect of those aircraft. The Transaction is expected to complete in two stages: the sale of 75.1% of theshares in Condor currently owned by Thomas Cook will complete in February 2009and the sale of 24.9% of the shares in Condor currently held by DeutscheLufthansa Aktiengesellschaft ("Lufthansa") will complete in February 2010, afterthose shares have been acquired by Thomas Cook from Lufthansa. Completion maytake place sooner, if agreed with Lufthansa. Completion of the Transaction is conditional, amongst other things, on clearanceor approval being obtained from the relevant competition authorities.("Anti-trust Clearance"). After the first completion date, Thomas Cook will beentitled to appoint two non-executive directors and one executive director tothe board of Air Berlin. 4. Information relating to Condor Condor is a major German low fare airline serving 78 short, medium and long hauldestinations, run at arm's length from Thomas Cook's major tour operatingbusiness, and constituting Thomas Cook's Airlines Germany division. After asuccessful turnaround, Thomas Cook reported a profit from operations beforeexceptional items for its Airline Germany division of €38.1 million. TheAirline Germany division's profit before taxation for the year to 31 October2006 was €20 million, on sales of €1.2 billion (including intra-group sales of€0.5 billion). As at 31 October 2006, the Airline Germany division had grossassets of €1,480.6 million. In 2007, Condor will carry about 7.2 million passengers. 40% of Condor's salesin 2007 are forecast to be to Thomas Cook's tour operators in Germany. Thirdparty tour operators account for 24% of Condor's sales. The remaining 36% ofCondor's sales are to seat-only customers directly. Condor has 35 aircraft, of which nine are long haul, operating from Frankfurtand Munich and other German airports. All of these aircraft are owned orfinance leased. 5. Information relating to Air Berlin Air Berlin, which is listed on the Frankfurt Stock Exchange, is Germany'slargest low fare airline, based in Berlin, with an expected 19.7 millionpassengers in 2006. For the year to 31 December 2006, Air Berlin reportedearnings before interest and tax of €64.1 million on sales of €1.6 billion. Earlier this year, Air Berlin acquired LTU, another German low fare airline,located in Dusseldorf, which carried 5.7 million passengers in 2006. Air Berlinand LTU combined have more than 6,600 employees and a total of 131 aircraft. Ofthese 11 are long haul. 6. Financial effects of the Transaction Profit from operations before exceptional items for Thomas Cook's AirlineGermany division, which comprises the Condor airline operations, for the year to31 October 2006 were €38.1 million. Thomas Cook's EBIT will be reduced by thecorresponding result once the merger is completed, since Condor will cease to beconsolidated . However, Thomas Cook will equity account for its share of AirBerlin's profit as associate income. For the year to 31 December 2006, AirBerlin reported profit after tax of €50.1 million. However, its profit aftertax is expected to increase as a result of the annual synergies from theacquisitions of dba and LTU, which Air Berlin has estimated to be €70 millionand €70-100 million respectively. In addition, synergies from the merger ofCondor with Air Berlin are expected to be at least €70 million by 2010. As a result of the merger, forecast net assets of €25.6 million as at 31 October2007 will be deconsolidated and replaced by a net investment in Air Berlin.Thomas Cook's cash will be reduced at first closing by an estimated €320 millionand net financial debt is expected to be reduced by €185 million. Cash flowfrom Condor will be replaced by dividend income from Air Berlin and capitalexpenditure in the Airline Germany division would cease. Condor's definedbenefit pension scheme will cease to be a liability for Thomas Cook, resultingin a reduction in pension obligations of €266 million. 7. Agreement with Lufthansa Lufthansa currently owns 24.9% of the shares in Condor. Pursuant to anagreement with Lufthansa, Thomas Cook has a call option which it can exercise atany time after 9 February 2009 (the "Exercise Date") to require Lufthansa tosell its 24.9% stake in Condor to it for €77.19 million. Lufthansa has acorresponding put option entitling it to require Thomas Cook to acquire its24.9% stake in Condor at any time after the Exercise Date. Lufthansa has a right of first refusal over Thomas Cook's 75.1% shareholding inCondor until the exercise of the put or call option and Thomas Cook has agreednot to sell its 75.1% stake in Condor to a third party prior to the ExerciseDate without the prior consent of Lufthansa. The agreement with Lufthansafurther provides that after the exercise of the put or call option, Lufthansa'sright of first refusal will revive if Thomas Cook sells the 24.9% interest inCondor acquired by it from Lufthansa pursuant to the exercise of the put or calloption within one year of the date of such exercise. 8. Description of the Share Exchange Agreement Thomas Cook and Air Berlin have entered into a Share Exchange Agreement thatprovides for the merger of Condor with Air Berlin. (a) Consideration The consideration to be received by Thomas Cook under the Share ExchangeAgreement is new ordinary shares in Air Berlin with a value between €380 millionand €475 million (the "Consideration Shares"). Consideration Shares with avalue of not less than €285,380,000 will be issued to Thomas Cook on the firstcompletion and Consideration Shares with a value of not less than €94,620,000will be issued on the second completion. The number of Consideration Sharesissued to Thomas Cook may be adjusted as a result of the cap and collarmechanism or the maximum shareholding provisions described below. Collar If at the time of the first completion or the second completion the Market Valueof a Consideration Share is €15.34 or more the number of Consideration Shares tobe issued will be fixed at 18,603,650, in relation to the first completion, andat 6,168,188, in relation to the second completion (subject in each case to thecap and maximum shareholding provisions referred to below) described. Cap If the Market Value of the shares to be issued on the first completion plus anycash paid under the maximum shareholding provisions would be more than€356,725,000 or the Market Value of the shares to be issued at the first andsecond completion (taken together) plus any cash paid under the maximumshareholding provisions would be more than €475,000,000, any cash considerationpayable under the maximum shareholding provision and, if necessary, the numberof shares to be issued to Thomas Cook would be reduced such that the MarketValue of the shares issued at the first completion and the first and secondcompletion (taken together) plus any cash paid under the maximum shareholdingprovisions equals €356,725,000 and €475,000,000 respectively. If Thomas Cook's shareholding in Air Berlin would otherwise fall below 15.02% atthe first completion or 20% at the second completion, Thomas Cook has an optionto subscribe for additional Air Berlin ordinary shares to bring Thomas Cook'sinterest up to 15.02% and 20% at the first and second closing respectively. Thesubscription price for such additional Air Berlin ordinary shares will be theMarket Value of such additional shares payable in cash. Maximum shareholding If the issue of the Consideration Shares would result in Thomas Cook (and anyparty acting in concert with Thomas Cook) holding in aggregate more than 29.99%of the ordinary shares in Air Berlin or otherwise being required to make amandatory offer for Air Berlin in accordance with Rule 9 of the City Code onTakeovers and Mergers the number of Consideration Shares to be issued will bereduced and a payment in cash will be made of an amount equal to the MarketValue of the number of shares by which the Consideration Shares have beenreduced. Market Value References above to the "Market Value" means the weighted average price of AirBerlin's ordinary shares as shown on the website of the German Listing Authorityfor the three months ending on the fifteenth business day prior to the first orsecond completion date (as the case may be). Condor - settlement of intra-group debt and cash position adjustment On the first closing date, Thomas Cook will repay to Condor all amounts it thenowes to Condor under any intra-group loan arrangements. At the same time, AirBerlin will pay to Thomas Cook an amount equal to the amount by which the cashor cash equivalent of Condor as at the first closing date (the "Cash Balance")exceeds €320 million. If the Cash Balance is less than €320 million, ThomasCook will pay to Condor an amount equal to the shortfall. It is expected thatthese provisions will result in a payment by Air Berlin to Thomas Cook ofapproximately €120 million. (b) Selling restrictions Thomas Cook has agreed, subject to certain exceptions, not to sell any of theConsideration Shares for a period of twenty four months commencing on the dateof the first completion of the Transaction. The exceptions include anydisposals of shares to affiliates of Thomas Cook provided the affiliate agreesto be bound by the selling restriction, the acceptance of a takeover offer forAir Berlin or voting in favour of a scheme of arrangement of Air Berlin pursuantto section 425 of the Companies Act 1985, any off-market sale other than to anairline which is a competitor of Air Berlin provided the purchaser of the sharesagrees to be bound by the selling restriction and any disposal relating to 2% orless of the issued ordinary share capital of Air Berlin within any three monthperiod. (c) Conditions to completion The first completion of the Transaction is conditional on obtaining Anti-trustClearance and the exercise by Thomas Cook of its call option under the agreementwith Lufthansa. The second completion is conditional upon the consummation ofthe first closing and the lapse of Lufthansa's right of first refusal under theLufthansa agreement. Both the first and the second completion are alsoconditional upon no insolvency proceeding having been commenced with respect toAir Berlin or Thomas Cook. (d) Restrictions on Air Berlin and Thomas Cook pending completion Air Berlin has agreed that from the time Anti-trust Clearance has been obtaineduntil the date of the second completion, it will refrain from proposing orgiving effect to certain transactions without Thomas Cook's consent. Thesetransactions include any alterations to Air Berlin's share capital (includingthe issue of new shares or securities or options convertible into new shares)and declaring or paying any dividend or other distribution (other thanreasonable dividend payments). Thomas Cook has agreed to similar restrictionsand to certain undertakings relating to operational matters with respect toCondor for the period between obtaining Anti-trust Clearance and the firstcompletion. Ends This information is provided by RNS The company news service from the London Stock Exchange