Business

Corporate Travel to buy US business in bold pandemic move

Corporate Travel to buy US business in bold pandemic move

Acquiring another business is a bold thing to do when you’re a travel company being hammered by the coronavirus pandemic.

The company last month posted a small net loss for 2019-20, when it slashed more than 1000 jobs, and has not provided an outlook for the current financial year, citing uncertainty around travel restrictions and quarantine requirements.

But it announced on Tuesday it was absorbing Nebraska-based Travel & Transport, which services the business sector and derives more than 90 per cent of its earnings in the US, while Europe accounts for the rest.

Corporate Travel, which earned around 60 per cent of its revenue from domestic travel within Australia, New Zealand, Europe and North America before the health crisis, says there is a compelling strategic rationale for the acquisition “with scope for material combination benefits”.

CommSec analyst Steve Daghlian said the acquisition aimed to strengthen the company rather than just sitting back and taking the hits during the health crisis.

“They’ve maybe taken advantage of the situation at the moment where things are volatile and uncertain in the travel space,” Mr Daghlian told NCA NewsWire.

Corporate Travel says a fully underwritten entitlement offer will raise $A375 million, and additional capital is being raised to cover costs and may even lead to other acquisitions.

Mr Daghlian said it was a significant raising given the company’s $A1.7 billion market value and was being offered at a substantial discount to its last trading price, so there could be “pullback” when it emerges from a trading halt.

“This is a stock along with the rest of that travel space has done quite poorly – not as bad as most of the other names like Flight Centre, Webjet, which have fallen about 60 per cent, while Corporate Travel is down about 21 per cent this year,” he said.

“Many analysts see it as being perhaps more resilient than some of those companies that are more reliant on international leisure travel. We’ll have to see.”

Corporate Travel says it expects to complete the deal late next month and has been told by the ASX it did not need shareholder approval, even though it is likely to represent a significant change to the scale of its activities.

The company entered the trading halt on Monday when an announcement by Deputy Prime Minister Michael McCormack put a rocket under travel-related stocks.

He confirmed the Federal Government would extend the domestic aviation network support program until January 31, while the regional airline network support program will run until March 28.

North America was Corporate Travel’s largest revenue contributor in the second half, with flight schedules increasing there and in Europe in the June quarter despite COVID-19, and it had cash in the bank at the end of the period.