Thomas Cook, Sterling Holidays to merge in Rs870-cr deal

Tour operator Thomas Cook (India) Ltd (TCIL) will merge its operations with vacation ownership property operator Sterling Holiday Resorts (India) Ltd in a deal valued at Rs870 crore, the two companies announced today.

The merger, to be carried out at share swap ratio of 100 shares of Sterling for 120 shares of Thomas Cook (India), will be completed in stages.

TCIL, which was acquired in 2012 by Canadian property and casualty insurer Fairfax Financial Holdings Ltd, run by Prem Watsa, from its debt-ridden UK parent, for about Rs817.4 crore (See: Prem Watsa's Fairfax Financial to buy Thomas Cook India for Rs817.4 crore), will initially make a preferential investment of approximately Rs187 crore to acquire about 23.24 per cent of Sterling against purchase of shares from Sterling shareholders totalling 23.63 per cent in the company for Rs276 crore.

It will then make a mandatory open offer for Rs230 crore for buying up to 26 per cent stake in Sterling. Thomas Cook will also have the option to buy an additional 7.2 per cent for Rs63 crore.

The merger, which is expected to close by the fourth quarter of 2014, will give Thomas Cook access to Sterling Resorts' 19 properties in 16 holiday destinations across India.

ICICI Securities was the merchant banker for the deal, while Antique Group was the advisor for the transaction.

Ramesh Ramanathan, managing director of Sterling Holidays, said the merger would benefit both companies from multiple synergies. While it would provide Thomas Cook a ready inventory of holiday rooms for their clients, Sterling will get increasing number of clients for its properties.

The deal will enable Sterling to enter new destinations, buy larger properties and achieve its goals faster, Ramanathan said. Both companies will be able to de-risk the seasonal nature of their holiday businesses, their officials said.

The deal has been on the works for the past six weeks and was signed late on Friday night, Madhavan Menon, managing director of TCIL, said, adding that Sterling would continue under the present management team but with an independent board.

Sterling Holidays has a network of 19 resorts in 16 holiday destinations that together have about 1,512 rooms. The company has about 70,000 members. About half its revenues come from membership of its vacation ownership plans, while the other half comes from non-members.

Ramanathan said the company has about 15 parcels of land of about 150 acres where the company can build another 2,500 units. The company has turned in operating profits in the last quarter and its current debt of about Rs44 crore (mainly a term loan from ILFS) would be settled soon through the infusion that comes from TCIL.