THL is set to take over United and Kea in a move that will add value for all stakeholders
Tourism Holdings shareholders will on Friday vote on a plan that will shake up the motorhome business in New Zealand.
The company operates more than 1500 vehicles or about 27 per cent of the market and through the proposed $69.5 million merger with rivals United Campervans and KEA Campers will lift that stake to close to 45 per cent.
A Cameron Partners report finds "compelling" opportunities to cut costs in the merger, which it says could add material value for both Tourism Holdings investors and the United and KEA sellers.
The transaction is forecast to lift annual revenue to $241.3 million in 2014 from this year's $200 million, with profit rising to $14.8 million from this year's $4.5 million.
Motorhomes are the backbone of THL's business and the Cameron report says the deal will enable an efficient approach to fleet management. The KEA and United businesses will be fully integrated into THL, enabling operating cost cuts through the consolidation of leases, back-office savings, better buying terms and staff reductions.
THL's payment for KEA and United includes the refinancing of $50.9 million in debt, 12 million THL shares at 61.9c each and $3.2 million in cash. A deferred payment of up to $8 million is contingent on vehicle selling prices meeting expectations.
United Campervans principal Kay Howe will join Tourism Holdings' board as an executive director and Grant Brady, KEA principal and managing director, will lead RV Manufacturing campervan group, in which he has a 50 per cent stake.
Tower Investments has a 7 per cent stake in THL and will be voting to support the deal.
Head of equities Richard Stubbs said it was a sensible response to tough times in the tourist sector in the wake of the global financial crisis. With such a large chunk of the market THL had stronger pricing power.
"The whole industry has been suffering over the past few years over far too much capacity as a result of some very strong years prior to the GFC. The issue with this business is that it was very easy to grow your business. Especially prior to the GFC you could get asset finance, but unfortunately that led to oversupply and the industry has been very weak in terms of profitability ever since," he said.
THL would also benefit from United and KEA's marketing presence in different regions in Europe.
Stubbs said refreshing the THL board was also positive and he was confident the company had offered the lowest feasible price.
The Cameron report also offers an insight into the downturn and sluggish recovery facing the industry.
It finds that compound annual growth for the past decade has been 3 per cent and holidaymakers are up only 2 per cent, and that there is an average yearly decline of 0.2 per cent for holiday visitors staying in the country for over two weeks.
Tourism Holdings' business was strongly driven by the number of western tourists with mid to long-term holiday plans and the spending patterns of these visitors.
Global economic conditions that are combining to suppress demand growth include the Eurozone economic downturn and the continued poor outlook for recovery, the slow recovery in the North American economy and, despite strong growth from Australia, a significant proportion of those tourists were visiting friends and family with a slow transport spend.