Flight Centre abandons JV with Pacific Equity Partners

Flight Centre has decided to terminate its proposed leveraged joint venture with Pacific Equity Partners.

As per the information available, the decision of Directors of Flight Centre was based on a commissioned report by Ernst & Young.

The report concluded that the proposed transaction was neither fair nor reasonable based on an analysis of Flight Centre’s performance for the year to June 30 2007. Instead, the independent expert considered Flight Centre’s appropriate value to be in the range of A$2 to A$2.1 billion.

It is the second time a PEP-backed restructure of Flight Centre has been scuttled after an earlier proposal was killed off by institutional shareholders in February.

Flight Centre’s founder shareholders, who together control over 50 percent of the group’s shares, have stated that they no longer support the transaction based on the terms proposed. They have also formed a final intention to oppose the transaction at the Flight Centre EGM.

The company blamed cost and tax considerations for the demise of the latest proposal, which included a joint venture with PEP and a return of capital to shareholders. According to a statement to the Australian Stock Exchange, if Flight Centre had proceeded with the transaction, it would have accumulated an unacceptable level of costs and taxes. This would have ultimately prevented the company from returning sufficient cash proceeds to meet the requirements of shareholders.

While the creation of a leveraged joint venture had the potential to deliver significant benefits to FLT and its shareholders, it was also a highly complex and costly transaction, and the value proposition has become considerably less attractive for shareholders as a clearer picture of the costs of the transaction has emerged, said Bruce Brown, Chairman, Flight Centre.

Under the proposed deal, Flight Centre’s operational assets would have been transferred to a joint venture owned 30 percent by Pacific Equity Partners. Flight Centre said it would have received about $A1.1 billion in cash from new debt facilities and PEP’s payment, much of which would have been returned to shareholders in cash and through an off-market buyback.

The company plans to look at “alternative capital management strategies”.