Despite its announcement last week of record transaction levels and a 17 percent increase in revenue during the second quarter of 2005, Navigant International reported declining profit margins for the period—a particularly trying time for the mega travel management company, which now finds itself the target of increased acquisition speculation.
Navigant remains in the process of completing work on its financial statements for 2004 and, with last year's 10-K Securities and Exchange Commission filing still outstanding, the beleaguered company—previously one of only two publicly traded TMCs—saw its stock prices dip and its vulnerability to potential buyers spike after the Nasdaq electronic stock exchange delisted it last month.
"It really is business as usual and, in light of the recent successes, new sales, account retention and general feeling of recovery, having to go through this process is so frustrating because we've got so many folks outside of our control," said Ed Adams, Navigant chairman, CEO and president. "We're dealing with two of the big four accounting firms, who knows how many lawyers, federal agencies, Nasdaq. All of these things are coming to a crescendo in terms of things happening all at once."
Adams said the recent activity surrounding Navigant's financials and its Nasdaq delisting have been transparent to the company's corporate clients and that it will seek relisting as soon as it completes its SEC filings and makes the necessary financial adjustments.
"The final straw was when we thought we'd get an extension from Nasdaq. I don't want to characterize us as being victims, we're not," said Adams. "In fairness to them, I think Nasdaq finally said, where do we draw the line? These regulatory issues are here to stay and we've got to come up with something consistent."
Adams remains "cautiously optimistic" that the company will file in the "near future"—terms he has used in the past—but said he has stopped offering predictions as to the exact timeframe. "Every time I thought we had a resolution, I've been unpleasantly surprised," he said. "It's really been quite a process. The sense of urgency that we have is sometimes difficult to engender in everyone else that we're working with."
Industry experts are skeptical as to Navigant's ability to hasten the filing process, but Sidoti & Co. analyst David Gold said he anticipates the TMC will wrap things up within three months. "It's taken longer than I expected and probably longer than they expected too," Gold said. "Recently, they've been using Deloitte for their audit. In earlier years, they used PricewaterhouseCoopers. To get things in order, they have to work with both accountants. At this point, it seems like a case of, the more people you have to work with, the longer it's going to take to get everyone on the same page."
Navigant's stock prices took a beating when news of its delisting broke, falling nearly 13 percent before recovering, and the company adopted a "poison pill"—a stockholders' rights plan to prevent a hostile takeover of the company by any acquirer seeking a majority stake in the company at rock-bottom pricing. Pegged at just one-tenth of a percentage point above global partner TQ3's planned stake in the company, Navigant's anti-takeover plan enables shareholders to purchase preferred shares if any one shareholder amasses 15 percent of the company on the open market.
"Management's not trying to say, 'Leave us alone,' " Adams said. "All the plan says is if you want to own more than 15 percent, you can, but deal with the shareholders' board and they can waive it. If somebody wants to take control, that's fine, but let it be at a premium."
Over the course of the second quarter, Navigant stakeholders TQ3 Travel Solutions, a subsidiary of German parent company TUI, and Dutch holding company Boron Securities NV both increased their investments in the Denver, Colo.-based TMC. TQ3, which made public in SEC filings its intent to acquire up to 14.9 percent of Navigant, ratcheted up its stake in the company to 11 percent. Boron, owned by Dutch billionaire John Fentener Van Vlissingen—founder of BCD holdings, which, with U.K. travel giant Hogg Robinson owns Business Travel International, the global partner of Navigant competitor WorldTravel BTI—became the company's largest stockholder when it upped its stake to 11.6 percent.
"If you look at either one, they're both loosely competitors. Of late, TQ3 is more of a partner than a competitor," said Gold. "If you look at Boron and WorldTravel, perhaps they want to expand or double down with Navigant. If you look at TQ3, they went through a period where they lost their U.S. partner—Maritz—and have expressed that they don't want that to happen again, so further investment makes sense in that respect as well."
Some industry experts asserted TQ3 may be Navigant's most likely acquirer, with Boron's investment serving as a response to Hogg Robinson's acquisition of New York-based TMC and Sea Gate Travel Group
(BTN, May 16)."If I was on a game show, I'd guess it'd be TQ3," said Bob Sweeney, president of Atlanta-based travel agency brokerage Innovative Travel Acquisitions. "Boron and WorldTravel BTI are interesting. Knowing the personalities, I don't know if they would peacefully coexist with Navigant. I just don't know, culturally, if WorldTravel would be the right fit for Navigant."
While analysts and experts agree that a Navigant sale isn't likely to happen until, at the very earliest, the company sorts out its financials and completes its SEC filings, Sweeney said that the TMC, established in 1997, would seem to be nearing its expiration date as a rollup—a corporate consolidation strategy that traditionally leads to a sale.
"On average, rollups like Navigant typically flip in six to 10 years. We're in the middle of that—8 years—with Navigant," said Sweeney. "Navigant's not going to do 60 more acquisitions. They probably won't bulk themselves up much more. They're either going to continue operating for a little while or sell."