Galileo Is On The Block

<B>Galileo Is On The Block</B>

Galileo International earlier this month said its board "authorized management to explore strategic alternatives for the company," including "a leveraged buyout or sale to a strategic buyer." Noting there "is no assurance that any transaction will be completed," the company shortly will select a financial advisor to help it explore alternatives.

"We do not believe that the public market is appropriately valuing our consistent financial performance, cash flow generation and excellent growth prospects," said chair, president and CEO James Barlett in a news release. "Our board has agreed that it is in the best interest of shareholders that we evaluate all options in order to deliver increased shareholder value." Galileo's shares jumped 20 percent on the news.

Analyst Jennifer King of Merrill Lynch said, "It is possible that a competing CRS may be interested in buying Galileo for its base of travel agency clients. It holds roughly 30 percent market share. Another party may be interested in Galileo's emerging telecommunications network services subsidiary (Quantitude), which does hold some good potential value."

Analyst Michael Hamilton of Dain Rauscher Wessels in Minneapolis rated Galileo a "strong buy, so I guess by definition I agree" that Galileo is undervalued on Wall Street. "There's no doubt the Internet is encroaching on the core business model, but it remains to be seen just how much after the dust settles."

Galileo last week reported third-quarter earnings of $54 million before one-time items, 4.4 percent higher year over year on an earnings-per-share basis. Galileo's revenues totaled $406 million, up 5.5 percent. But worldwide bookings declined 3 percent--and 9.8 percent in the United States--due to the impact of the shift in bookings to the Internet and the labor disruption at United Airlines. Galileo's executive vice president and CFO Cheryl Ballenger also attributed a small impact from last year's "salesforce transition" (BTN, Feb. 22, 1999).

In the short term, said Ballenger, Galileo's "likely growth in the traditional agency channel will be mitigated by the shift to the Internet," and the company will focus on its XML Select and TravelGalileo.com products. The agency service at TravelGalileo.com has registered nearly 400 new agents.

Galileo said this year it won new contracts worth 4 million segments, including the multi-year, multimillion-dollar deal with WorldTravel BTI announced last week. Previously, Galileo had "a very small component of their business," said Barlett.