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Back in the days of true retail service, the sales assistant would double bag a shopper’s goods lest the items break through. Dufry, the global travel retailer, might need such extra support for its bulging shopping bags. It has bought 11 airport retailers since 2006, including Nuance Group for $1.7bn last year. This week it said it would pay €1.3bn in cash for a majority stake in World Duty Free, an Italian rival. The sellers are the Benetton family, which owns 50.1 per cent of WDF. Minority shareholders will eventually receive the same offer. Buying the whole lot would value WDF at €3.6bn. Dufry’s shares rose 8 per cent on the news.
Perhaps the market thought Dufry had found a bargain. WDF’s share price fell on the day as Dufry’s bid of €10.25 per share fell well short of Friday’s close of €10.92. But look again. Dufry has valued WDF’s enterprise value at over 14 times earnings before interest, tax, depreciation and amortisation.
The former trades closer to 11 times, which is above its five year average. Even assuming a combination of equity (40 per cent) and debt, this deal will not add to earnings per share before 2017. From that year Dufry management promise €100m in annual cost savings, which is less than 10 per cent of WDF’s operating expenses.
WDF shareholders look to be receiving a full price. European specialist retailers, as an example, are valued at an average of 13 times ebitda. So Dufry is paying a premium, albeit for a company whose ebitda is expected to grow by just under 10 per cent annually for the next couple of years.
What does Dufry gain from this deal? For one it would have greater access to European airports, particularly in the UK. WDF earns more than half of its ebitda there. Moreover, the combined group’s global market share would rise by half to a healthy 24 per cent by sales. But that does not merit such an expensive expansion. Dufry needs a break from the retail therapy.
This article has been amended since first publication to correct the number of airport retailers bought by Dufry since 2006 from six to 11.