View from City Road: The game is up for Owners

THE QUESTION in the City yesterday was not whether Airtours would fly away with Owners Abroad, but why on earth the Owners board failed to recommend an agreed offer after talks last week.

Airtours thought it was close to a deal, and admits it might have been even sweeter than the 136p-a-share offered yesterday.

That price should be high enough to make it almost certain that Thomas Cook, and its German parents, WestLB and LTU, are not going make this a three-way battle.

Thus the game is up for Owners. The chairman, Howard Klein, and his team produced a spirited defence but, given Owners' dismal performance of late, they were hardly in a position to attack the quality of Airtours' management, led by David Crossland, Hugh Collinson and Harry Coe.

Owners' shareholders need to decide whether to accept Airtours' shares, with a partial cash alternative if they wish, or sell their stock in the market.

The latter option is tempting, given that Owners' closing price yesterday of 134p is almost three times higher than the 46p low point the shares reached in September before bid speculation began.

But there are stronger arguments for accepting the Airtours offer. The bidders' phenomenal record has been rehearsed before and there is every reason to believe future performance will, if anything, be enhanced by the benefits flowing from its enlarged size.

The combined group could make as much as pounds 100m pre-tax profits in its first full year. Last year the two companies made only pounds 61.5m, but that included a particularly poor performance of pounds 25m from Owners. Market conditions were also depressed last year and bookings at both groups have been considerably healthier of late. Owners is expected to turn in about pounds 40m profits, Airtours should make the better part of pounds 50m, and analysts reckon on potential savings of pounds 10m- pounds 15m from rationalisation.

Profits of pounds 100m would give earnings of 35 1/2 p, leaving Airtours' shares at yesterday's closing price of 309p on a multiple of 8.7 times earnings. That represents a whopping 40 per cent discount to the market, which is hardly sustainable.

Owners shareholders should take the Airtours shares.

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