Carlson Makes Mega Deals: Signs Pacts to Gain Control Of CWT, Acquire TQ3Navigant

Carlson Companies late last week announced agreements to take a majority stake in Carlson Wagonlit Travel and buy rival travel management company Navigant International.

CWT's acquisition of Navigant for $16.50 per share—valuing the company at $510 million, including assumption of debt—means the third-largest travel management company in the United States is buying the second-largest. Carlson Wagonlit already claims to be the largest TMC in the world outside North America.

At the same time, Carlson Wagonlit's 50 percent shareholder, Accor, is selling its stake to Carlson Companies and private equity investor One Equity Partners for $465 million. The sale increases Carlson Companies' holding in Carlson Wagonlit from 50 percent to 55 percent, while One Equity Partners takes the other 45 percent. Both the Accor divestment and the acquisition of Navigant are subject to standard shareholder and regulatory approvals. Carlson expects the Navigant deal to be approved within 90 days.

One Equity Partners is a private equity affiliate of JPMorgan Chase, managing $5 billion of its affiliate's investments and commitments in direct private equity transactions. Carlson Wagonlit said it has obtained "commitments" from JPMorgan Chase, as well as Lehman Brothers and Morgan Stanley, to finance the Navigant deal.

The CWT deals have significant implications for the global travel management market, which now is more consolidated than at any time in its history. There are four leading players, all of them wholly or majority-owned: American Express, Carlson Wagonlit, BCD Travel and HRG, plus a potential fifth force in the form of wholly owned FCm Travel Solutions.

In the United States, where HRG is a small player despite sizeable interests in almost all other key markets, the Navigant acquisition means greater polarization than ever between the big three and the rest of the field. According to 2004 ARC figures, BCD predecessor WorldTravel BTI processed 5.2 million transactions and the next largest was Omega World Travel with just over 1 million transactions. According to CWT president and CEO Hubert Joly's own estimates, CWT now has 7 percent marketshare in the United States, compared with 9 percent for Amex. Worldwide, he estimated that Amex has 10 percent marketshare and CWT 9 percent. However, Joly said: "Nothing in our strategy is focused on surpassing Amex in size."

The deals leave Carlson Wagonlit saddled with significant debt, but Joly said the acquisition of Navigant demonstrates the owners' wishes to grow the company. "Our shareholders are voting with their feet by writing a check for $510 million," he said. Questions also will be asked about when One Equity Partners can expect a return on its significant investment, but Joly said OEP was "committed to four years in the business."

Navigant chairman and CEO Ed Adams will leave the company after seeing through the transition. CFO and COO Bob Griffith will become an executive vice president of Carlson Wagonlit, reporting to Jack O'Neill, COO of North America. Carlson Wagonlit will retain its global headquarters in Paris. Joly said: "Carlson Wagonlit is a very global company. Where the CEO resides is irrelevant."

Carlson Wagonlit was formed in 1994 by a union of Carlson Companies' Carlson Travel Network and Accor's Wagons-Lits Travel. The two merged fully in 1997, with Carlson Companies and Accor as joint shareholders. However, a change of management within Accor at the beginning of this year led to new president Gilles Pélisson determining that it would divest Carlson Wagonlit to concentrate on core hotel and service interests. Accor and Carlson Wagonlit have announced a partnership in which each will be a preferred supplier to the other for the next three years.

"The exit of Accor is being done in a very amicable and smooth fashion," Joly said. "There are two agreements that have been put in place: One is that CWT will have the privilege of continuing to be Accor's travel management company, and in addition, there's a three-year, renewable, strategic distribution agreement for their hotels."

In contrast, Carlson Companies, which also has a significant hotel business, has determined that travel management remains a complementary core interest. "The travel industry has been a core business of our company since the 1970s," said Marilyn Carlson Nelson, chairman and CEO of Carlson Companies. "This very important transaction demonstrates our commitment to the industry and enhances our opportunity to continue serving business travel clients around the world."

Carlson and OEP are creating a board comprised of four Carlson representatives and three from OEP, as well as a fourth independent appointment. "Curtis Nelson has been chairing the board and will continue. Mike Batt will serve on the board on Carlson's behalf and probably Trudy Rautio, who is our CFO and is really intimately involved in this very complex transaction," said Carlson Nelson, who also will serve on the board. "Trudy would be an excellent board member and has developed a relationship with Greg O'Hara and Richard Cashin of OEP. This will be not unlike our partnership with Accor—the difference is, of course, that we have a 55 percent share as the operating partner, and OEP, as the financing partner, has a clear interest, as we do, in growing the company and building shareholder value."

The deal nails the coffin lid on the name TQ3 Travel Solutions, which launched as a powerful force in global travel management in 2001. However, the brand was weakened when Carlson Wagonlit bought Maritz Travel, the original North American partner in TQ3, in March 2004. TQ3 replaced Maritz with Navigant, but then the interests of TQ3 European and managing partner TUI were bought on Jan. 3, 2006, by BCD Holdings of the Netherlands.

This left Navigant with ownership of the TQ3 name and a strong presence in the United States, but negligible interests in the rest of the world. Initially, Adams said Navigant would rebuild the TQ3 network, but that intention evaporated once CWT showed interest in buying the company. "The business travel sector is experiencing a period of consolidation and aligning with the leaders of the future is the right decision for all of our stakeholders," Adams said.

Joly said the company would take its time with the merger, which will be superintended by David Moran, who also led the integration of Maritz in 2004.

The deals reaffirm the mantra of CWT's former president Hervé Gourio that the company would be an acquirer, not one of the acquired. Buying Maritz increased its size in the United States by one-third and gobbling up Navigant makes it the second-largest U.S. TMC. Precisely comparable figures are elusive, but in 2004 CWT recorded 5.2 million ARC-processed air transactions in the United States. Navigant claimed 8.1 million transactions that year, but BTN could not verify this figure, and Amex reported 16.3 million transactions for North America.