Moscow, Russia – November 25, 2010 – Sistema (LSE: SSA), the largest diversified public financial corporation in Russia and the CIS, which invests in, and is a major shareholder of, companies operating in different industries, today announced that OJSC Intourist (“Intourist”), a subsidiary of Sistema, and Thomas Cook Group Plc (“Thomas Cook”), one of the world's leading travel groups, have agreed to establish a joint venture for Intourist’s tour operating and retail businesses and a sale of a 50.1% stake in the newly formed entity to Thomas Cook for a total stock and cash consideration of US$45 million.
The new joint venture will include Intourist’s tour operating and retail businesses. Intourist will have a 49.9% stake in the joint venture while Thomas Cook will acquire a 50.1% stake in the joint venture for a total consideration of US$45 million of which US$10 million is to be payable in cash and US$35 million due in Thomas Cook’s shares listed on the London Stock Exchange (based on the average share price for twenty trading days preceding completion of the deal). Intourist will retain its hotel business.
The agreement includes a purchase price adjustment mechanism under which there may be an adjustment of up to US$15 million to Thomas Cook’s purchase price if the joint venture’s 2012 EBITDA is less than US$15 million, with any such purchase price adjustment payable in cash or additional shares of the joint venture. In addition, Thomas Cook and Intourist each have options exercisable over the next five years, under which Thomas Cook may call, and Intourist may put, Intourist’s remaining shares of the joint venture. The exercise price for these options will be based on a multiple of 6x EBITDA in the year preceding the exercise of the options. The documentation for the transaction also requires Sistema to provide a guarantee of up to US$8 million for Intourist’s obligations under the joint venture documents and a restriction on the sale of the Thomas Cook shares for six months. Sistema intends to mitigate pricing risk in its Thomas Cook shares position through hedging arrangements.
The joint venture will focus on the expansion of the travel business in Russia and the other CIS countries, combining two leading international brands. Thomas Cook’s economies of scale in contracting accommodations, financial, product and technical know-how combined with the experience and industry expertise of Intourist’s management team, will enable the joint venture to grow its business by expanding product offerings and portfolio of routes.
Intourist’s management team will run the day-to-day operations of the joint venture, supported by a selected team of Thomas Cook representatives, including a new CFO, who will be appointed shortly. The management of the joint venture will report to Thomas Döring, Executive Director of Thomas Cook’s West and East Europe segment. Denis Wathier, CEO of Thomas Cook France, will become Chairman of the Board of Directors of the joint venture.
This transaction is in line with Sistema’s portfolio strategy of seeking partnerships with experienced international operators and crystalising value in its more mature portfolio investments. Intourist is keeping a material stake in the newly formed venture which reflects Sistema’s optimism for its prospects and provides an opportunity to gain higher value in the future.
The completion of the transaction is contingent upon a number of conditions, including agreement on a 2011 budget, Intourist’s sale or contribution of certain assets and liabilities to the joint venture, and approval by the Russian Federal Antimonopoly Service (FAS). The sale is expected to be completed in the first quarter of 2011, provided that the conditions described above are satisfied.