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Tourism Holdings' $69.5m merger offers 'compelling' opportunities

BUSINESSDESK: Tourism Holdings' $69.5 million merger with rivals United Campervans and KEA Campers offers "compelling" opportunities to cut costs, an independent adviser's report says.

The rental campervan operator's board unanimously recommends shareholders sign off on the deal to grow its market share in a cash and scrip offer after independent advisers Cameron Partners declared the transaction could potentially add "material value" for Tourism Holdings investors and the United and KEA sellers.

The deal will lift Tourism Holdings' market share of the rental caravan market to 45% from its current 27%.

"We consider the strategic rationale for the transaction to be strong and the fleet rationalisation and synergy benefits to be achievable," the report says. "The strategic rationale to reduce over-sector capacity and to achieve potential cost synergies is compelling."

The company has been looking at ways to squeeze more from the market as international visitor numbers from Europe and the UK decline amid the global economic downturn and as the New Zealand dollar's strength persist.

The shares fell 1.4% to 71 cents today and have rallied 25% since the merger was announced earlier this month.

Tourism Holdings chairman Keith Smith says the company needs to cut costs and reduce fleet capacity in an "effective and timely manner" and that the discount on the targets does not often arise.

"While the board remains confident in the long-term outlook for tourism, it recognises that there is little change of increasing tourist numbers to New Zealand from the core European and United Kingdom markets over the coming two years." 

The transaction if 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.

The deal needs 50% approval to get over the line and shareholders will vote on the transaction at a special meeting in Auckland on October 19.