TQ3 Travel Solutions half-owner TUI is lining up a bid to buy into or buy out new U.S. partner Navigant International, sources said. The German travel giant has determined that ownership of the TQ3 network is essential after losing, within three months, French partner Protravel and former U.S. partner Maritz Corporate Travel to rival Carlson Wagonlit Travel.
Carlson Wagonlit's purchase of MCT was announced March 18, one day after TQ3 said Maritz Inc. sold its 50 percent holding in TQ3 and resigned as the TQ3 partner in the United States and Canada. Navigant, which beginning in May will call itself TQ3Navigant in multinational bids, took over both the nominal equity stake and role of North American partner.
Navigant is "perceived as a take-out play," said Credit Suisse First Boston analyst Scott Barry. "Travel management companies are in the middle of a multi-year consolidation trend. In the end, we envision three or four mega distributors." According to CIBC World Markets analyst Paul Keung, "As long as there are benefits of scale, you're going to consolidate and buy customers."
TUI wants to invest in Navigant to consolidate its position in the world's largest business travel market and to prevent further fracturing of its network. At present, TUI is prevented from buying Navigant because the U.S. Bank Holding Act prevents companies from investing in the travel or transportation sector in the United States if their shareholders include any foreign banks. Germany's Westdeutsche Landesbank (WestLB) owns a 31 percent stake in TUI, but the bank is in severe trouble and under pressure to sell its position. It had been widely expected to divest its equity in TUI by the end of last year, and the delay has caused complications for TQ3 chiefs in reformulating their strategy.
Asked whether TUI now plans to acquire Navigant, TQ3 president and CEO Marc Hildebrand refused to answer directly, citing the status of both TUI and Navigant as publicly traded companies. "We have a goal of full ownership in the near future," he acknowledged. "Not having full ownership everywhere in the world has given our competitors an opportunity to attack us. This is a very important question, and there will be a more exciting development, but there are some things you cannot talk about."
TQ3 launched in February 2001
(BTN, Feb. 26, 2001), driven by the might of TUI—one of the world's largest travel companies and also the runaway business travel market leader in Germany. Although it impressed from the outset with the rapid establishment of a unified global brand identity, compelling marketing hid an unstable partnership structure. To paraphrase Oscar Wilde, to lose one major partner to Carlson Wagonlit may be regarded as misfortune, to lose two looks like carelessness.
It was the United Kingdom that showed the first real signs of trouble, where the independently minded licensee Alan Spence refused to sell at a price TUI considered reasonable. Consequently, TUI in October 2002 bought another top 10 U.K. agency, Phoenix Travel. This also was rebranded TQ3 Travel Solutions, which has caused confusion in the U.K. marketplace as two different agencies trade under the same name. The former Phoenix operation handles the network's multinational business, while Spence's TQ3, now owned by Flight Centre of Australia, handles U.K.-only business.
Since then, TQ3 has been weakened further by the desertion of Protravel in France
(BTN, Dec. 8, 2003), which caught it unaware, and the sale of Maritz in the United States. TQ3 executives maintain the loss of Protravel was a blessing in disguise because it has forced TQ3 down the path of ownership in France. "Within TQ3, the message when that happened was, 'Here's the bad news: Protravel is joining CWT.' We didn't have the good news," said TQ3 global COO Toby Joseph. Regarding the firm's effort to build off a French leisure operation and create a wholly owned corporate travel presence there, Joseph said, "We're now up and running, and the doors will open for business midyear."
Calling the Protravel buy "hostile," Hildebrand said, "I think our competitors' strategies to attack TQ3 have failed. TQ3 is stronger today than ever before and now is in a position to attack everyone else in the most important marketplace in the world, and that is the U.S." Carlson Wagonlit Travel North America president Robin Schleien said he would not respond to "meaningless claims."
As for the United States, Hildebrand did not comment on whether TUI had made a bid for the erstwhile Maritz Corporate Travel, formerly TQ3 Americas, but he did say that partnering with "number six or five in the U.S. marketplace is, and I'll say it straight away, simply not good enough if you really want to be one of the top global players."
Whether Hildebrand and his colleagues succeed in buying Navigant will depend on how deep TUI feels its pockets to be at the point WestLB sells its stake in the group, but full ownership would be to the liking of its clients. "How can we rely on our relationship when we can see large markets have changed?" asked Bernd Burkhardt, senior manager for DaimlerChrysler travel management in Europe and the rest of the world except the United States, where DaimlerChrysler is handled by Total Travel Management rather than TQ3. Burkhardt added that while the Navigant partnership shows him that TQ3 retains serious global ambitions, he would be happier if it were converted into outright ownership. "TQ3 has had to collaborate in partnerships to grow as quickly as possible, because only the biggest can survive, but on the other hand, ownership might be best because it is more stable," he said.
The developments at TQ3 and Carlson Wagonlit are the latest in a round of consolidation among worldwide travel management companies, kicked off by American Express buying Rosenbluth International last summer. Since then, Carlson Wagonlit has made good on its promise to be a company that acquires rather than being among the acquired, consolidating its position as the number-two global player. Attention now may focus on the one other travel management company with substantial numbers of global accounts, which is Business Travel International.
Last December, BTI consolidated its ownership when Hogg Robinson of the United Kingdom bought BTI Central Europe from Kuoni, which held an 8 percent stake in the umbrella BTI organization. Hogg and Dutch-owned BCD Holdings each now own 50 percent of BTI. A merger between the two is expected, but Hogg CEO David Radcliffe said this month's industry changes had not accelerated developments. "We have never made any secret that there is compelling logic to bring BTI together," he said. "Does this speed things up? I don't think so."
What remains unclear is who would buy whom in the event of a merger. BCD is privately held by billionaire John Fentener van Vlissingen. It owns the BTI partners in Belgium, the Netherlands, Portugal and the United States, not to mention TRX Inc. Balanced against that, Hogg is the managing partner of BTI and owns the national partners in many more markets, including Australia, Canada, France, Germany, Scandinavia, Switzerland and the United Kingdom. Hogg is the third-largest privately owned company in the United Kingdom.
Meanwhile, Radcliffe expressed skepticism about the recent Carlson Wagonlit and TQ3 deals. Speaking of CWT's acquisition of Maritz, he said: "It has made them bigger, but I am not sure it has made them better. There will be economies of scale, which may produce cost savings, but I am not sure there are any strategic strengths in the acquisition."
"There are efficiencies, but our primary purpose is around growth," said CWT's Schleien, noting the deal would close within 90 days, following anticipated Federal Trade Commission approval. A thorough integration strategy is expected to be formed within six months
(see story). "It's not going to be 'ready, fire, aim,' " Schleien said. MCT will be consolidated within CWT, and MCT president and CEO Jack O'Neill has been named U.S. executive vice president and COO for CWT. Details on new roles for other top MCT executives soon will begin to emerge, officials said.
Terms of the deal were not disclosed, although CWT Worldwide president and CEO Herve Gourio said other bidders trumped CWT's initial offer, so CWT made a second offer that was accepted. Other bidders included Cendant Corp. and Sabre Holdings, BTN learned
(BTN, March 15). "The negotiating process was a bit too long, to my taste," Gourio said.
Maritz Inc. chairman and CEO Steve Maritz told the St. Louis Post-Dispatch that MCT generates "far less" than 10 percent of Maritz Inc.'s revenues. Those revenues total $1.4 billion, according to court documents filed by the company as part of a legal battle among Maritz's owners, which officials said did not precipitate the sale of MCT. Maritz Inc. chief marketing officer Scott Bush said Maritz had determined that corporate travel was not within its core strategy going forward, even though "we strongly believed in our corporate travel team."
The two companies "have not discussed" any changes to facilities, O'Neill said, although he noted that "the St. Louis office will continue."