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INVESTMENT BANKING
2016-18
GROUP ASSIGNMENT
ON
Sterling India Resort- Thomas Cook India Limited
Submitted by:
Priyanka Lalwani 201600212
Trisha Mittal 201600205
Ankul Gupta 201601239
Amitkumar Chorasiya 201611105
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Sterling India Resorts: Thomas Cook India
“Ramesh Ramanathan and his team at Sterling Resorts are veterans who were instrumental in developing
the Vacation Ownership category in India and we are delighted to partner them via this merger! The
synergistic opportunities that this new partnership between Thomas Cook & Sterling Resorts offers are
enormous, because they create multiple avenues to grow our respective businesses and to create valuable
business opportunities together”
Madhavan Menon, MD, Thomas Cook (India) Ltd
Overview
• On February 7, 2014 India’s leading integrated travel and travel related financial services company
Thomas Cook (India) Ltd. (TCIL) announced a merger with the 27 year old vacation ownership
pioneer, Sterling Holiday Resorts India Limited.
• Merger focused on synergies and jointly leveraging growing Domestic & Inbound travel, Vacation
Ownership & Hospitality opportunities
• Post merger, Sterling Holiday Resorts to continue operations under the leadership of Ramesh
Ramanathan with an independent Board
• Based on equity investments and merger ratios, the aggregate value of the two companies is
approximately Rs. 3000 Cr.
Thomas Cook Background
Thomas Cook (India) Ltd is the leading integrated travel and travel related financial services company in the
country offering a broad spectrum of services that include Foreign Exchange, Corporate Travel, MICE,
Leisure Travel, Insurance, Visa & Passport services and E-Business. The company set up its first office in
India in 1881. TCIL‟s footprint currently extends to over 242 locations (including 23 airport counters) in 99
cities across India, Mauritius & Sri Lanka and is supported by a strong partner network of 134 Gold Circle
Partners and 165 Preferred Sales Agents in over 150 cities across India.
Thomas Cook (India) Ltd has been voted Best Tour Operator at the Lonely Planet Travel Awards 2013,
Favourite Specialist Tour Operator at the Condé Nast Traveller Readers' Travel Awards for 3 years in a row
and Best Tour Operator - Outbound at the CNBC AWAAZ Travel Awards 2013. TCIL was chosen as the Best
Corporate Travel Management Company by World Travel Brands 2012, and recognized as a “Consumer
Superbrand” 2012-2013. At the National Tourism Awards 2011-2012, TCIL was the recipient of 3
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prestigious awards. ICRA has assigned a long term rating of „ICRA AA-/ Stable‟ and CRISIL has assigned a
long term rating of CRISIL AA-/ stable outlook, to the non convertible debenture program.
Thomas Cook (India) Limited is promoted by Fairfax Financial Holdings Limited through its wholly-owned
subsidiary, Fairbridge Capital. Fairbridge is responsible for the execution of acquisition and investment
opportunities in the Indian subcontinent on behalf of the Fairfax family of companies.
Sterling Resort India Background
Sterling Holiday Resorts (India) Limited is a pioneer in Vacation Ownership and a leading Leisure Hospitality
company in India. Sterling Holidays was established in 1986 in Chennai, India, and opened its first resort,
Lake View Kodaikanal (the resort has been recently renamed as Kodai - By The Lake with the vision of
delivering Great Holiday experiences to Indian Families. To achieve this vision, the company pioneered
Vacation Ownership in India and set about building a network of leisure resorts at some of the best holiday
destinations in India. Currently, Sterling Holidays has a total inventory of 1512 rooms spread across a
network of 19 resorts (Corbett, Darjeeling, Dharamshala, Gangtok, Goa, Karwar, Kodaikanal, Lonavala,
Manali, Munnar, Mussoorie, Ooty, Puri, Thekkady, Yelagiri and Yercaud) in 16 scenic holiday destinations in
India. The company also has 15 additional sites where it plans to add new resorts in the coming years.).
Sterling Holidays expanded to 11 resorts by the year 1988 In 2010, the company changed its brand name
from Sterling Resorts to Sterling Holidays.
In 2015, Sterling Holiday Resorts India Limited became a 100% independently managed subsidiary of
Thomas Cook India Limited (TCIL) in the back of the former's equity shares being bought in an off-market
transaction by Thomas Cook Insurance Services (TCISIL).
Thomas Cook India Limited (TCIL) traded on stock exchange as NSE: THOMASCOOK; BSE: 500413. Sterling
currently has 26 resorts at some of the most sought after destinations in India.
The Thomas Cook Acquisition Opportunity
According to the World Economic Forum’s Travel and Tourism Competitiveness Report 2013, India ranks
11th in the Asia-Pacific region and 65th globally out of 140 economies ranked on Travel and Tourism
Competitiveness Index. India has been witnessing steady growth in its travel and tourism sector over the
past few years. Total tourist visits have increased at a rate of 16.3 % per annum from 577 Million tourists in
2008 to 1057 Million tourists in 2012.
‘The Spectrum of Leisure Real Estate Products in India’ a report published by the Group RCI-Cushman and
Wakefield Hospitality Report in 2009 said that Vacation Ownership (or timeshare) was a nascent concept in
India then and it had a potential to grow at approximately 16% per annum from 2006 to 2015, which will
be facilitated by the supply growth of approximately 12% per annum over the same period. An article
published in 2012, noted that the Vacation Ownership / Timeshare sector witnessed a growth of 18%
during 2008-2012 period.
The healthy growth projections quoted in the above mentioned reports seems to have consistently met by
the companies operating in the Vacation Ownership sector. Further, the Vacation Ownership players have
been enthused by the new government’s focus on building the tourism industry in India, and with
economic sentiment on the upswing, the industry is expecting a boost in the growth of vacation ownership
sales.
As India’s leading integrated travel and travel related financial services Company, TCIL’s merger with
Sterling Holiday Resorts reaffirms their commitment to their stated strategy of investing in mutually
beneficial partnerships that broaden their business services platform to increase shareholder value
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Reasons as why TCIL choose to invest in Sterling
• Key Management Personnel: One of the most compelling reasons for TCIL to acquire Sterling was
Mr. Ramesh Ramanathan, the CEO of Sterling. Mr. Ramanathan, a veteran in the Vacation
Ownership space, first joined the company in 1991 and helped in developing its business for the
next six years. After this period, he spent 13 years at Mahindra Holidays (a prime competitor to
Sterling). Up on his return to the Company in 2009 the Company saw a drastic turn-around from it
otherwise bleak looking business future.
• Vertical integration: Both the companies operate in the same sector with each of them having a
large travel oriented customer base. Further, industry experts believe that this could also be a move
towards vertical integration. TCIL as a travel services company can start offering the hospitality
options to its customers as currently provided by Sterling on standalone basis, thus helping them to
plan their holidays better.
• Sterling’s debt free model and potential asset growth: Sterling has been generating positive cash
flows, and it is expected that Sterling’s revenue for the year ending March 2014 will be of
approximately USD 26 Million, with a breakeven free cash flow. Thus, to that extent, it can be
expected that Thomas Cook will not be required to further fund Sterling’s operation and
management cost.
In addition to the developed property in form of existing resorts, Sterling also owns 150 acre of the
undeveloped land with huge development potential and TCIL’s acquisition price (approximately
USD140 Million) is excluding the value of the unutilized land.
Further a report recently published lays down the sector specific advantages for investing in
Vacation Ownership. Report says that, “For one, its a debt-free model, as customers pay for 25
years of holidays upfront. The funds raised from the sale of vacation ownership membership plans
are used for the expansion of the resort and the holiday destination network, expanding inventory
to bring in more members. Second, vacation ownership companies see better year-round resort
occupancies, as members tend to holiday more to utilise their membership fully
• Synergy
▪ Benefits to Thomas Cook India Ltd (Acquirer Company): Thomas Cook customers will have
access to our pan-India network of well located, full-service, quality resorts which offer
great holiday experiences. Thomas Cook India gained access to Sterling Resorts’ network of
19 resorts in 16 holiday destinations across India. The company also has 15 additional sites
where it plans to add new resorts in the coming years. Sterling’s affiliation with Resort
Condominiums International (RCI) - the global expert in exchange vacations, also allows its
members to vacation in over 4000 RCI affiliated resorts all over the world.
▪ Benefits to Sterling India Resorts (Target Company): The merger with Thomas Cook will
strengthen Sterling’s market position as there are multiple natural synergies which both
companies will mutually benefit from. Sterling stands to benefit from Thomas Cook’s iconic
brand reputation and TCIL’s large base of domestic and inbound travel customers. There is
also scope to add value to Sterling’s Vacation Ownership members through the synergies
that exist between the two companies.
Structuring and Pricing a Deal
Financing Structure: Thomas Cook India merger with Sterling Holiday was announced having a cash and
stock deal that valued Sterling at Rs.870 crore. Both companies jointly will have a market value of Rs.3000
crore.
The part equity, part merger deal is structured as a multi stage process:
• TCIL Group will make a Preferential Allotment Investment for approximately of Rs. 187 Cr. into
Sterling
• TCIL Group will purchase shares from Sterling shareholders for Rs. 176 Cr.
• TCIL Group will make a mandatory open offer for Rs.230 Cr.
• There will be a merger between the two companies at a defined swap ratio of 120:100
The following are the details of the cash consideration part of the Deal:
• Share Subscription: INR 1,868,618,500 (USD 31.14 Million).
• Share Purchase: INR 1,764,752,346 (USD 29.41 Million).
• Open Offer: INR 1,000,482 (USD 16,675).
• Open Market Purchases: INR 915,834,143 (USD 15.36 Million) and INR 147,000,000 (USD 2.45
Million)
Following was the equity consideration given under the Scheme:
• Demerger: The entire business division and undertaking of Sterling engaged in time share and
