Dufry Agrees to Buy World Duty Free Stake From Benettons

Switzerland’s Dufry AG plans to acquire Italian rival World Duty Free SpA for 2.6 billion euros ($2.8 billion), forming an industry-leading business that will control almost a quarter of the airport retail market.

After buying a 50.1 percent stake from a company controlled by the Benetton family, Dufry said it will make an offer for the rest of World Duty Free, which operates stores at airports including London’s Heathrow and Gatwick.

Funding will be provided by the Singaporean sovereign-wealth fund GIC Pte, the Qatar Investment Authority and Temasek Holdings Pte, with each investing as much as 450 million francs in Dufry. The deal, Dufry’s biggest, is a feather in the cap of Chief Executive Officer Julian Diaz, who has expanded the company through about a dozen acquisitions in the past decade, creating a dominant operator in the field of travel retailing.

“This will significantly strengthen the group’s economic power and business opportunities for future growth, but it should also come with restructuring costs, a capital increase and a higher net debt,” Volker Bosse, an analyst at Baader Bank, wrote in a note to investors.

The offer price is 16 percent above the closing level Jan. 28, the day before Bloomberg reported Dufry was considering a bid for World Duty Free, though it’s 6.5 percent lower than Friday’s close. World Duty Free declined 8.2 percent to 10.06 euros at 9:13 a.m. in Milan, while Dufry shares gained 3.8 percent to 140.50 Swiss francs in Zurich.

Deal Financing

Including debt, the transaction values World Duty Free at 3.6 billion euros, Dufry said in an e-mailed statement. The transaction will initially be financed through a bridge facility of that amount, which Dufry will refinance by selling at least 2.1 billion euros of equity and with as much as 1.5 billion euros of debt. The retailer also forecast the purchase will boost cash earnings per share by a double-digit percentage in the second year after the acquisition.

Acquiring World Duty Free would create a business with a 24 percent market share in airport retail. Dufry acquired Hudson News, a chain of U.S. airport shops, in 2008, and purchased Nuance Group for about $1.7 billion last year.

The deal raises short-term risks as Dufry is still busy absorbing Nuance, according to analysts including Marco Strittmatter, an analyst at Zuercher Kantonalbank AG.

“Dufry is still fully busy with the acquisition of Nuance, which is why we find the timing for another large takeover unfavorable,” Strittmatter wrote in a note. “In the mid- to long-term the acquisition of WDF will be worth it for Dufry, in the short-term it will dilute earnings.”

495 Stores

World Duty Free operates 495 stores in 19 countries and 98 airports across the world, according to its website. The Benetton family has held a controlling 50.1 percent stake since the company was spun off from Autogrill SpA and began trading independently in 2013. The two companies combined would have had 2014 sales of more than $8 billion.

Dufry was in advanced talks to acquire World Duty Free, people familiar with the matter said on Feb. 20. Other potential bidders had included Korean competitor Lotte, people said in January.

The Benetton family’s Edizione Srl was assisted by Bank of America Merrill Lynch, while World Duty Free was advised by Deutsche Bank AG. Dufry is working with Goldman Sachs Group Inc., UBS Group AG and Credit Suisse Group AG.