• September 28, 2022

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The world’s biggest airport retailer is set to merge operations with global travel food and beverage (F&B) player Autogrill to create a formidable new entity in the travel retail channel whose combined sales in 2021 were $6.7 billion (split roughly Autogrill: $2.8 billion and Dufry: $3.9 billion). In pre-pandemic 2019, the merged business would have had combined sales of $14 billion.

Edizione, the investment arm of Italy’s Benetton family, will transfer its entire stake of 50.3% in Autogrill to Dufry at an exchange ratio of 0.158 new Dufry shares for each Autogrill share through a wholly owned subsidiary. Edizione will ultimately become Dufry’s largest shareholder with a stake of between about 25% and 20% at the end of the transaction. The exact percentage depends on the level of take-up of Dufry shares by Autogrill shareholders in the mandatory tender offer that follows the transfer.

Financial mechanics aside, the merger of a global travel retailer and a foodservice expert in travel locations such as motorways gives Switzerland-based Dufry significant new weight in its contract negotiations with airport landlords, thanks to a literal new leg of F&B to stand on.

Up to now, at the global level only Lagardère Travel Retail has had such a broad services offer across duty-free retail, convenience and F&B. One reason perhaps why the French rival has just been chosen to partner Group ADP at airports in Paris for a new wide-ranging joint venture called Extime that spans multiple commercial services.

In a post-pandemic world, larger hubs may increasingly turn to JV deals of Extime’s scale, in which case the Dufry-Autogrill move is well timed. Recently-arrived CEO of Dufry, Xavier Rossinyol, who has strong experience in both travel retail and F&B, said in a presentation this morning: “We already see in many parts of the world a convergence of different formats and we want to lead that process.”

Dufry said: “The integration of travel retail, convenience and F&B allows the combined entity to improve the commercial setup and revenue generation for landlords. This also includes bidding to act as master concessionaire/terminal manager.” This latter approach is common in the United States, and could put Dufry head-to-head with operators like URW Airports.

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The new entity will employ around 60,000 people and serve 2.3 billion travelers in around 5,500 outlets across 1,200 airport and other locations in more than 75 countries (based on 2019 numbers). While the scale is big, it is not all that complementary from a geographical perspective. Both companies are heavily weighted to North America and Europe: in 2021 the respective revenue shares were 48% and 44% for Autogrill and 26% and 45% for Dufry. Asia Pacific hardly got a look in, so building regional diversity will remain a challenge.

Airports, train stations and now motorways

Dufry will, however, open up new distribution channels. While 84% of its sales came from airports last year, the share at Autogrill was 57%, with a hefty 36% coming from motorway services which becomes a new area of activity for Dufry.

Another positive for Dufry is that the enlarged entity will have a strengthened balance sheet with lower financial leverage compared to the Swiss retailer on a standalone basis. The company is targeting a below 3x leverage level by 2024-2025.

The deal, subject to approvals, is expected to close in the first quarter of 2023, though the settlement of the mandatory takeover offer is unlikely to be completed until Q2 2023. The new player will eventually have a new identity and will be headed by Rossinyol as CEO. The CEO of Autogrill, Gianmario Tondato da Ruos, will assume the position of executive chairman of the North American business of the combined entity.

Rossinyol, said in a statement: “We are transforming our industry and redefining its boundaries, and we will create a new corporate identity to reflect this fundamental move. We will accelerate growth by fully focusing on consumers and digital, with an expanded service portfolio.” Rossinyol added that Edizione’s move implied a “long-term commitment to the new combined company.”

An American dream

Alessandro Benetton, chairman of Edizione, said that Autogrill remained a strategic asset and that the deal with Dufry would allow the F&B group a path for “continued growth and development.”

Autogrill’s strong position in the U.S. F&B market is considered by Dufry as beneficial because “the U.S. has proven to recover quicker and to be less volatile than the rest of the world due to the high share of domestic passengers.” The combined group will be present in more than 100 airports in the United Sates, with a shared presence in 17 of the country’s 20 largest gateways.

The integration of Dufry and Autogrill into one organization is expected to generate cost synergies with an annual run-rate of approximately $87 million made up of cost reductions and gross profit improvements. Saving are projected to be made at the cost-of-goods level in F&B and convenience, especially in the U.S. Dufry also expects to optimize support function costs and reduce business-related operating expenses.

In order to implement the deal, Dufry will hold an EGM on August 31, 2022 when it will encourage shareholders to support what it calls a “truly transformative, growth-enhancing and value-accretive transaction.” Before that, Dufry will publish its half-year results on August 9, 2022.

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