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ADP’S Expensive Turkish Landing 13 mars 2012

Posted by Acturca in Economy / Economie, France, Turkey / Turquie.
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The Wall Street Journal (USA) March 13, 2012, p. 32

Andrew Peaple

What price growth? European companies like Aéroports de Paris are keen to expand into vibrant emerging markets, as domestic economies stutter. The airport operator is paying $874 million for a 38% stake in Turkey-listed TAV Havalimanlari, whose airports have more than doubled passenger volumes in the last five years. But investors should question why ADP is paying a 32% premium for a deal that doesn’t give it a seat at the controls.

Sure, the deal fits ADP’S strategy of buying airports with scale in OECD member countries. ADP currently has interests in 25 airports around the world. TAV will bring another 12, including Istanbul’s main terminal. Turkey’s transport ministry expects double-digit air-passenger growth over the next decade, far faster than the probable rate at ADP’S main current asset, Paris’s Charles de Gaulle. TAV raised revenue and operating profit by 12% and 21%, respectively, last year, compared with 0.9% and 5.5%, respectively, at ADP.

Still, TAV’S current 56% owners— construction firm Tepe Insaat, conglomerate Akfen Holding and construction group Sera Yapi— will be pleased with their deal. They are being paid a 52% premium to TAV’S share price when they put their stakes up for tender last September. They will still have four of the board’s 11 members, despite reducing their combined stake to 18% of the shares, whereas ADP will have only three board members.

That could limit ADP’S power to improve TAV’S operations, especially as TAV’S current chairman and chief executive will remain. TAV’S profit margins are well below ADP’S, partly because a quarter of its revenue derives from less profitable baggage handling and security, activities that ADP has largely outsourced. ADP has given no detailed estimates of cost synergies from the deal that might justify the premium it is paying. Meanwhile, TAV’S concession over Istanbul Airport expires in less than 10 years, adding some longer-term risk to the deal.

ADP shares barely budged on news of the deal. Investors are right to remain in the terminal.


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