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Dufry Bets on Mediterranean Tourism With Folli-Follie Unit

Dufry AG (DUFN), the operator of Hudson News stores in airports, agreed to buy a 51 percent stake in Folli-Follie Group’s travel retail business as it bets on the resilience of Greek tourism amid a troubled local economy.

Dufry will pay 200.5 million euros ($258 million) for the stake, which it will finance by selling shares for about 250 million euros, the Basel, Switzerland-based company said today in a statement. The purchase is expected to provide a “mid-single-digit” boost to earnings per share next year.

The Folli-Follie unit operates 111 shops in Greece, according to Dufry, which has more than 1,200 outlets in airports, cruise terminals and other travel locations. The Swiss company said the purchase will probably close in early 2013 and it has an option to buy the remaining 49 percent in four years.

“The deal is accretive from year one and not expensive,” Marco Baccaglio, an analyst at Cheuvreux in Milan, wrote in a research note. Still, “operations are risky, based in Greece, and the rights issue might put a cap on the stock valuation.”

Dufry will also fund the acquisition with 335 million euros of loans. The five-year non-recourse financing from six banks will pay interest at 575 basis points more than the euro interbank offered rate, Dufry said on its website. A basis point is 0.01 percentage point.

Dufry shares rose 0.7 percent to 114.70 Swiss francs at the close of trading. The stock has gained 33 percent this year.

‘Great Asset’

“In the short term, there’s uncertainty because it’s Greece and the share issue is disappointing,” said Jon Cox, head of Swiss research at Kepler Capital Markets in Zurich. “But it isn’t particularly expensive and in the long term it’s a great asset because you can bet that tourists will still be going there.”

The unit of Athens-based Folli-Follie (FFGRP) had revenue of 291 million euros last year, with 80 percent from international travellers. Dufry’s sales amounted to 2.64 billion Swiss francs ($2.81 billion) in 2011.

“It represents another big step forward in our strategy to consolidate the fragmented travel retail industry with focus on tourist destinations and emerging markets,” Julian Diaz, Dufry’s chief executive officer, said in the statement. “The tourism industry in Greece has proven to be highly resilient during a difficult period for the local economy,” Dufry said.

Dufry said Sept. 24 it was in advanced talks to buy the stake. The company will have “shareholder structuring” costs of 28 million euros from the transaction, it said today.

To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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