American Express Co. (AXP - Analyst Report) (AmEx) officially announced the sale of 50% of its Global Business Travel (GBT) division through a joint venture (JV) with an investors’ consortium – Certares, led by New York-based Certares International Bank LLC.
Accordingly, AmEx will retain 50% stake in the JV, while the group from Certares will hold the remaining 50% share for a deal value of $900 million. In September last year, AmEx had mentioned its interest in spinning off 50% of GBT for a price in the range of $700 million to $1.0 billion.
With over 14,000 employees, GBT embraces a wide scale of operations with its business spanning across more than 138 countries. On the other hand, Certares enjoys expertise in the global travel industry, led by a veteran chief investment officer from JPMorgan Chase & Co. (JPM - Analyst Report).
AmEx appointed UBS AG (UBS) and Lazard Ltd. as its lead advisor, while Credit Suisse AG (CS - Snapshot Report) is advising Certares. Pending regulatory approvals, this JV deal is scheduled to culminate by Jun 2014, following which AmEx is also projected to realize gains from the transaction.
Rationale for the JV Deal
The decision is also backed by the company’s intention to revamp its corporate travel card operations. However, the consumer-travel operations of AmEx is not included in the deal. We believe the aforementioned business restructuring will help AmEx consolidate its overall business and enhance its operational leverage.
This is due to the fact that the company has been facing intense pricing and competitive challenges in this travel business, given the influx of several low-cost online travel agencies and other digital services in the industry. Higher costs and operating limitations also resulted in a 2.9% decline in travel commissions and fees since 2011 to $1.9 billion in 2013. Likewise, the company had to slash its headcount, primarily in the travel business, by about 5,400 last year.
Hence, aligning with Certares blends well with AmEx’s strategy of accelerating its travel business, which constitutes corporate travel spending of more than $19 billion. According to the Global Business Travel Assn. Foundation, corporate travel spending is further expected to grow by 6.6% in the U.S. and about 12.5% from international travel in 2014. Moreover, AmEx will gain strong support from Certares’ investors that primarily include Qatar Holdings, Macquarie Capital and BlackRock Inc. (BLK - Analyst Report).
Consequently, the enriched industry experience of both the parties involved in the JV is expected to swiftly improve its business-to-business payment solutions and create valued synergies, while also enable the expansion of its corporate client base.
While AmEx carries a Zacks Rank #3 (Hold), other better-ranked financial stocks include Euronet Worldwide Inc. (EEFT - Snapshot Report) and General Finance Corp. (GFN - Snapshot Report). Both these stocks bear a Zacks Rank #2 (Buy).