THL
28/09/2012 08:36
MERGER
REL: 0836 HRS Tourism Holdings Limited
MERGER: THL: THL Notice of Special Meeting and suporting documents
The attached documents are being mailed to shareholders today
28 September 2012
Dear Shareholder,
On September 3rd 2012, I wrote to you regarding the proposed merger of thl's
New Zealand rentals business with the United Campervans and KEA Campers
rentals businesses in New Zealand (Proposed Merger).
Proposal Summary
The Proposed Merger is to acquire United's campervan and motorhome fleet,
forward order book, and certain non-fleet assets and to acquire KEA's
campervan and motorhome fleet, forward order book, and certain non-fleet
assets for a combined consideration of approximately $69.5m.
The consideration payable by the Company under the transaction is to be met
by:
o the issue of 6,444,265 ordinary shares to United for $0.619 per share for a
total consideration of $3,989,000 and the issue of 5,574,932 ordinary shares
to KEA for $0.619 per share for a total consideration of $3,450,883 in total
approximately $7.4m;
o the refinancing of United's and KEA's debt of approximately $50.9m (in
aggregate);
o a cash payment to each of United and KEA of approximately $3.2m (in
aggregate); and
o entry into a Deferred Consideration Agreement with each of United and KEA
with a value of approximately $8.0m.
I am now pleased to present you with further information on the Proposed
Merger along with the information you require regarding the Special Meeting
of Shareholders.
The further information includes an Independent Report completed by Cameron
Partners (the Report) which I will discuss later in this letter.
Enclosed with this letter you will find:
o The Notice of Special Meeting of Shareholders
o Cameron Partners' Independent Report on the Proposed Merger
o thl Annual Report for the 2012 Financial Year
o Proxy Voting Form and return addressed envelope
I would like to reiterate that the Proposed Merger, in the view of the board
and management, represents the best strategic alternative for thl to improve
shareholder value.
Proposal Benefits
The board recommends all shareholders to vote in favour of this Proposed
Merger based on the following key rationale:
o It provides an opportunity for thl to gain the best of all three businesses
while responding to the challenging market conditions;
o It is projected to be cash flow, earnings and dividend accretive within the
first two years;
o Forecast synergies, valued at $4.4m, are considered highly deliverable;
o KEA and United's assets will be acquired at a $7m discount to their
assessed market value;
o The merger enables a rapid reduction in acquisition debt with a projected
$18m repaid by the end of FY2013 and a further $16m by the end of FY2014;
o Downside risk on the sale price for the vehicles purchased is considerably
protected against by the deferred consideration mechanism ($8m in value);
o thl will retain the KEA and United founders industry expertise following
the Proposed Merger with Kay Howe proposed to join the thl board and Grant
Brady proposed to head the New Zealand vehicle sales business as well as his
existing role as Managing Director of RV Manufacturing Group, thl's joint
venture motorhome manufacturing operations.
thl faces uncertainty within the global markets in which we operate. Whilst
the board remains confident in the long-term outlook for tourism, it
recognises that there is little chance of increasing tourist numbers to New
Zealand from the core European and United Kingdom markets over the coming two
years.
As a board we believe this Proposed Merger strengthens thl's position in
these core markets. It allows us to reduce costs from the combined business
as duplicate resources and activities are removed. More importantly, it also
allows us to reduce the total fleet size to a level appropriate to demand
with a target fleet size of 1800 vehicles in a little over two years.
Board Response to Questions
Since the announcement of the Proposed Merger, two items of note have been
raised which I would like to comment on:
1. The question has been raised as to whether thl considered any mechanism to
release money back to shareholders, such as a share buyback or selling down
assets, instead of entering into the Proposed Merger.
The thl board has considered a variety of options to release cash to
shareholders. However, for the following reasons, none but the Proposed
Merger is currently considered appropriate:
o The core issue facing thl is the level of earnings in the New Zealand
vehicle rental business. The Proposed Merger helps address this issue;
o The board has received positive responses from our lenders on the Proposed
Merger, particularly for its potential to lift earnings. However, the board
is not confident they would support thl increasing debt if the use of those
funds was solely to return capital to shareholders;
o The board is very confident that putting in place a structure that
strengthens thl is by far the best option for all shareholders and will
provide the greatest returns.
2. The second question of note is whether United and KEA are being over paid
for the assets being purchased.
The board considers that there are three simple answers to this question:
o thl is protected from overpaying by the negotiated discount to market value
and the deferred consideration agreement discussed above. Should the proceeds
from the sale of surplus motorhome assets be lower than expected, the
deferred consideration will be reduced.
o Following the lengthy and robust negotiation process, we are confident the
price paid for United and KEA was the lowest possible price to achieve a
deal.
o In the Report Cameron Partners noted the following in regards to the value
paid: "In this case it is not unreasonable for the Vendors to seek to share
in the resulting benefits of the industry consolidation occurring under the
transaction. The Vendors share of value in this context is not unreasonable."
Independent Report
Cameron Partners were engaged to complete an Independent Report on this
transaction to provide you with an independent view to assist you in
assessing the proposal. Shareholders are encouraged to read the Independent
Report in its entirety when considering the Proposed Merger.
The Independent Report concludes as follows:
"We consider the strategic rationale for the transaction to be strong and the
fleet rationalisation and synergy benefits to be achievable. The increased
debt to fund the transaction should be repaid quickly as fleet
rationalisation occurs.
There is potentially material value created by the transaction for both the
Vendors and current thl shareholders. A significant proportion of this value
goes to Vendors but this is not unreasonable in a transaction of this nature,
where businesses are combining to achieve benefits and where the Vendors have
a high value alternative.
In any event, it is the view of the thl Board and management, that:
o Any offer below the price negotiated will not be acceptable for the
Vendors.
o There is no scope for a transaction under different terms and there are
only two outcomes to be considered by current thl shareholders - either:
o Approve the transaction on the terms proposed; or
o Decline the transaction.
On this basis, there is no opportunity for thl shareholders to obtain the
benefits of the transaction at a lower price. Accordingly, thl shareholders
should focus on the expected value uplift accruing to them from the
transaction and whether this is sufficiently material given the risks of the
transaction."
Approvals
The Proposed Merger is subject to thl shareholder approval under the NZX
listing rules. Full details are in the Notice of Special Meeting of
Shareholders. The Proposed Merger is also subject to funding approval from
thl's lenders which is expected prior to the Special Meeting of Shareholders.
Recommendation
The Directors of thl strongly support the Proposed Merger. We believe the
projected value accruing to shareholders is sufficiently material and thl has
taken all necessary and appropriate steps to mitigate the attendant risks. We
unanimously recommend that all shareholders support the Proposed Merger and
vote accordingly.
Summary
There is, in the view of the board, a need for cost synergies to be
established within the New Zealand Rentals business and for fleet capacity to
be reduced in an effective and timely manner.
It is not often that there is an opportunity to purchase quality assets at
this discount and with a deferred contingent consideration component and the
board believes the Proposed Merger is the right course of action for thl.
The board reiterates that the Proposed Merger has been assessed as the best
deal available from each of KEA and United and the best alternative for thl's
business as the board addresses the earnings and returns issues that face
thl.
If you require any further information please email us at [email protected] or
consult with your legal or financial adviser.
Special Meeting of Shareholders
The Special Meeting of Shareholders will be held in the Raffles Ballroom at
Stamford Plaza, 22 Lower Albert Street, Auckland on Friday, 19
October 2012, at 2pm.
If you cannot attend the board encourages you to exercise your vote by
returning your proxy form in the envelope provided indicating your decision.
Kind regards,
Keith Smith
Chairman
For further information contact:
Grant Webster
Chief Executive
Tourism Holdings Limited
Direct Dial: +64 9 336 4255
Mobile: +64 21 449 210
Ian Lewington
Chief Financial Officer
Tourism Holdings Limited
Direct Dial: +64 9 336 4212
Mobile: +64 21 952 254
End CA:00227846 For:THL Type:MERGER Time:2012-09-28 08:36:51
