Dufry has decided to buy Autogrill and create a new $6.7 billion travel retail powerhouse

The world’s largest airport retailer is set to merge operations with global travel food and beverage (F&B) player Autogrill to create a formidable new entity in the travel retail channel, whose combined sales in 2021 it was $6.7 billion (split roughly Autogrill: $2.8 billion and Dufry: $3.9 billion). In pre-pandemic 2019, the combined business would have combined sales of $14 billion.

Edizione, the investment arm of the Italian Benetton family, will transfer its entire 50.3% stake in Autogrill to Dufry at an exchange ratio of 0.158 new Dufry shares for each Autogrill share through a wholly-owned subsidiary. Edizione will eventually become Dufry’s largest shareholder with a stake of around 25% and 20% at the end of the transaction. The exact percentage depends on the level of take-up of Dufry shares by Autogrill shareholders in the mandatory tender offer that follows the transfer.

Financial mechanics aside, the merger of a global travel retailer and a foodservice expert in travel destinations such as highways gives Switzerland-based Dufry significant new weight in its contract negotiations with airport lessors, thanks in part to new F&B to stay.

Until now, globally only Lagardère Travel Retail has had such a broad service offering in duty free retail, convenience and F&B. Perhaps one reason why the French rival has just been chosen to partner Group ADP at Paris airports for a new wide-ranging joint venture called Extime that includes multiple commercial services.

In a post-pandemic world, larger centers may increasingly turn to Extime-scale JV deals, in which case the Dufry-Autogrill move is well-timed. Recently arrived Dufry CEO Xavier Rossinyol, who has strong experience in both travel retail and F&B, said in a presentation this morning: “We already see in many parts of the world a convergence of different formats and we want lead that process.”

Dufry said: “The integration of travel retail, convenience and F&B allows the combined entity to improve the commercial structure and income generation for the owners. This also includes the offer to act as master concessionaire/terminal manager.” This latter approach is common in the United States and could put Dufry head-to-head with operators such as URW Airports.

The new unit will employ around 60,000 people and serve 2.3 billion travelers at around 5,500 points in 1,200 airports and other locations in more than 75 countries (based on 2019 numbers). While the scale is large, it is not as complementary geographically. Both companies are heavily weighted to North America and Europe: in 2021 the respective revenue shares were 48% and 44% for Autogrill and 26% and 45% for Dufry. Asia Pacific has hardly received a look, so building regional diversity will remain a challenge.

Airports, train stations and now highways

However, Dufry will open new distribution channels. While 84% of its sales came from airports last year, the share in Autogrill was 57%, with a strong 36% coming from motorway services becoming a new area of ​​activity for Dufry.

Another positive for Dufry is that the enlarged entity will have a strengthened balance sheet with lower financial leverage compared to the Swiss retailer on a standalone basis. The company targets a leverage level below 3x by 2024-2025.

The deal, subject to approvals, is expected to close in the first quarter of 2023, although resolution of the mandatory takeover offer is unlikely to be completed until the second quarter of 2023. The new player will have a new identity and will be headed from Rossinyol as CEO. Autogrill CEO Gianmario Tondato da Ruos will assume the position of executive chairman of the combined entity’s North American business.

Rossinyol, said in a statement: “We are transforming our industry and redefining its boundaries and will create a new corporate identity to reflect this fundamental movement. We will accelerate growth with a full focus on consumer and digital, with an expanded portfolio of services.” Rossinyol added that Edizione’s move meant a “long-term commitment to the new combined company”.

An American Dream

Alessandro Benetton, chairman of Edizione, said Autogrill remains a strategic asset and that the deal with Dufry would allow the F&B group a path to “continuous growth and development”.

Autogrill’s strong position in the US F&B market is considered by Dufry to be beneficial because “the US has proven to recover faster and is less volatile than the rest of the world due to the high proportion of domestic passengers “. The combined group will be present at more than 100 airports in the United States, with a joint presence at 17 of the nation’s 20 largest gateways.

The integration of Dufry and Autogrill into one organization is expected to generate cost synergies at an annual rate of approximately $87 million consisting of cost reductions and gross profit improvements. Savings are expected to be made at the cost of goods in F&B and convenience, particularly in the U.S. Dufry also expects to optimize support function costs and reduce business-related operating expenses.

To implement the deal, Dufry will hold an EGM on August 31, 2022, when he will encourage shareholders to support what he calls a “truly transformational, growth-enhancing and value-adding transaction.” Before that, Dufry will publish its half-year results on August 9, 2022.

Leave a Comment

Your email address will not be published.