Lastminute acquires larger French rival in £59m deal

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The Independent Online, the high profile internet travel business, pulled off its first acquisition as a publicly quoted company yesterday when it agreed to pay £58.9m for a French rival four times its size., the high profile internet travel business, pulled off its first acquisition as a publicly quoted company yesterday when it agreed to pay £58.9m for a French rival four times its size.

Lastminute is buying Degriftour, France's leading online travel operation with the deal funded with £27.1m in cash and the remainder from the issue of new shares.

The takeover knocks a hole in lastminute's £117m cash pile raised from its stock market flotation in March. But it transforms the company's European scale as Degriftour is France's best known travel website with 50 per cent of the market and 250,000 customers since April 1998. It is four times the size of lastminute in terms of customer numbers and transaction revenues.

"This achieves today what our business plan would have taken two to three years to achieve in France," said Brent Hoberman, lastminute chief executive. Martha Lane Fox, chief operating officer, added: "This is a business we've always had our eye on, both from a competitor point of view and as an inspiration."

Degriftour was founded in 1991 when it operated on France's cable-based Minitel system which is installed in virtually every home. The business has been migrating customers to the internet with 60 per cent of transaction revenues in the three months to June coming via the Web.

The business is also profitable, with pre-tax profits of £200,000 last year on total transaction revenues of £50.3m. In addition, the business has £7m of net cash, giving a £20m underlying cash cost to lastminute.

But Degriftour is still heavily reliant on its domestic business. And as a privately held business, with 78 per cent of the shares held by 65-year-old founder, Francis Reverse, the company recognised that it needed a strategic partner.

Lastminute, whose stock market flotation in March marked the peak of the boom in internet stock valuations, started its own online operation in France last year. It plans to run the French brand alongside the lastminute site for a year to 18 months before abandoning it.

Some analysts said this is a risky move as the Degriftour brand is so well known in France. But Martha Lane Fox said: "If we were to kill the brand instantly we would be shooting ourselves in the foot. But we will integrate the two sites gradually."

Lastminute said the benefits of the deal were increased economies of scale in buying, advertising and technology as well as opportunities to cross-sell. Lastminute's wider range of inventory will be made available on the French site while Degriftour will offer a broader range of French holidays and flights to lastminute customers.

But the deal failed to lift lastminute's share price which stayed unchanged at 161.5p against its 380p issue price.

Analysts said the French deal would bring forward the forecast break-even point by 9-12 months to late 2002. But some sounded a note of caution on lastminute's cash position. "The negative thing is that they are giving up £20m of net cash," one said. "That could take them to break-even but if it doesn't they will find it very difficult to come back to the markets for further funding."

But the City was broadly positive on the deal. Heidi Fitzpatrick at Lehman Brothers said: "It's a very good deal at a very good price."