Tourism Holdings shares surge on prospects for merger

BUSINESSDESK: Shares in Tourism Holdings rose to a six-month high after the NZX-listed campervan rental company said it will acquire KEA Campers and United Campervans in a $69.5 million deal that will double its per-share earnings in 2014.

The stock rose about 14% to 65 cents, the highest since February 27. Shares in the Auckland-based company have shed about 3% this year and are rated "outperform" based on the consensus of three recommendations compiled by Reuters.

"The merger is the best response to the challenging realities of the New Zealand tourism market," chairman Keith Smith said on a conference call. "There is the potential for enhanced dividends, and its delivers enhanced return to shareholder value."

The deal is subject to 50% shareholder approval. A special general meeting will be held in mid-October, with the merger scheduled for completion on October 31.

Following the merger THL forecasts its operating profit to increase to $19.3 million in the June 2013 full year from $16.3 million a year earlier. That includes acquisition and implementation costs of $1.7 million.

In 2014, the first full year after the merger, operating earnings are expected to rise to $28.8 million, while after-tax earnings per share are set to double to 13.3 cents a share.

Its assets will rise to about $350 million from $280 million.

"The industry in New Zealand for the UK and Europe is still suffering," chief executive Grant Webster says. "We see the market declining further in 2012 – the Rugby World Cup provided some cash – kept people in business and kept them in a false sense of security."

Last week, THL returned to profit after an increase in sales from the world cup and the first full-year contribution its Road Bear unit in the US. Profit was $4.3 million in the 12 months ended June 30, from a year-earlier loss of $27.3 million. Sales increased 8% to $200 million.

The deal will see United Campervans principal Kay Howe join THL's board as an executive director to help with the integration.

Grant Brady, KEA principal and managing director, will lead the RV Manufacturing campervan group, in which he has a 50% shareholding. THL also proposes that he lead the company's New Zealand vehicle sales operation.