MILAN, Dec 30 (Reuters) — Italy’s Benetton family is ready to halve its 50 percent stake in World Duty Free to make the travel retailer more attractive to a potential partner in the industry, two sources close to the matter said.
A merger with a rival company would help the world’s second-largest travel retailer cope with the rising costs of airport concessions, which is set to hit its profitability in Spain. A merger would also give the retailer more bargaining power in dealing with suppliers.
Analysts also said a diluted stake in World Duty Free (WDF) would be easier to manage for the Benettons as the family prepares to hand over to a large number of heirs a business empire ranging from motorway concessions to the eponymous clothing retailer.
World Duty Free, which expects sales of between 2.38 billion and 2.43 billion euros ($2.89 billion to $2.95 billion) this year, up around 15 percent from 2013, runs shops in some of Europe’s busiest airports including Heathrow and Gatwick in London.
The Benettons, who control WDF through their Edizione Holding vehicle, spun off the airport business from caterer Autogrill in October last year, paving the way for a possible tie-up.
The family is now willing to give up control, the sources said.
“The Benettons are not against diluting their stake under 30 percent,” a source with knowledge of the family thinking said. The source added the family would be happy with a 15 to 20 percent stake in a well-managed, larger group.
WDF had no comment.
WDF’s portfolio of airport concessions has an average length of nine years, longer than rivals, thanks to its ability to negotiate an extension of the contracts ahead of their expiry.
The group reaps 60 percent of its core profits from its British business, which has emerged unscathed from the euro zone crisis.
However, its Spanish business is under pressure because the rents it pays for airport shops are set to rise significantly next year due to a specific term in its contract.
At the end of September, WDF had net debt of four times its cash core earnings, higher than market leader Dufry’s 3.3 percent level.
WDF is set to approve by mid-January a three-year budget as it seeks to turn around its Spanish business, make its U.S. operations more profitable and reduce any overlap between its British and Spanish businesses.
“Once the multi-year budget is approved, the group will focus on searching for an industrial partner,” the source close the family said.
WDF’s newly appointed chief executive, Eugenio Andrades, has pledged to look at alliances in the sector.
WDF has had contacts with some rivals, including Dufry, which last year bought smaller rival Nuance, the second source said.
South Korea’s Lotte Duty Free has also looked at WDF, according to press reports.
But finding a partner could take some time and a valuation could be a hurdle.
“The Benettons think WDF is worth nearly 3 billion euros based on the discounted cash flow method,” the source close to the family said.
WDF is valued at around 2 billion euros at current market prices.