28. 06. 2007 - Transparent Auction Successfully Completes the Cargo Divestment
Prague, 28 June 2007
The bid by Central European Handling a.s. was the highest offer in the electronic auction, which ended the call for bids by Czech Airlines (CSA), for the sale of its subsidiary Air Cargo Terminal. The market price, which significantly exceeds the book value of the equity held by CSA in this subsidiary company, was achieved in the auction, and this was one of the reasons that CAIB consultants have recommended that the company implement the sale. Shareholders will vote on the transfer of the 100% equity share in Air Cargo Terminal a.s. to the new acquirer, during the month of July.
Should the sale go ahead, Czech Airlines will have achieved the aim of this divestment – gaining funds required for the bridging of a financially complicated period at the beginning of 2008, and definitively releasing itself from past debts, which is a precondition for the further development of the company, and for gaining investment funds, for example for the construction of Hangar G – a new repair centre for the maintenance of aircraft, which is traditionally on a very high level in CSA.
Divestment and the company’s focus on its main lines of business is part of CSA’s curative OK 2006–2008 Strategy, which was approved by the General Meeting in June 2006, as a three-year concept for the rescue, stabilisation, and development of the company. Analyses were carried out in August and September on selected parts of the business, and cargo was selected as a suitable candidate for divestment. The operation of a freight terminal, as distinguished from ensuring the transport of freight in its own aircraft, does not represent a main line of business for CSA.
The call for bids, which ended with the electronic auction on 26 June 2007, de facto ended the divestment process concerning the Cargo Terminal, begun more than a year ago. The new owner will acquire the Terminal building and a licence for the operation of cargo handling (the storage, loading, and unloading of goods) at Prague Airport. The agreement also includes a long-term contract for the provision of services to Czech Airlines. The company will be retaining the actual provision of the air transport of goods and post in CSA aircraft.
“The Cargo Terminal was built in 2003, and its capacity has never been fully utilised. The development of this building would certainly be interesting, but in crisis management you are like a doctor who arrives at a car crash. First of all you have to save lives, and then comes the rest. In the case of cargo and also catering, this concerns assets, which bind investment resources, and which at the same time do not generate the corresponding financial result and free cash flow. This was not the only way to resolve the complicated situation in CSA after 2005, but it proved to be the only realistic one, and the most advantageous one for CSA in this situation. Neither aid from the State nor CSA becoming more indebted were possible. The alternative, involving the sale of aircraft, would have meant a significant upheaval for a company designed for a fleet of 50 aircraft, and also a marked weakening of CSA on the market. From the beginning we asserted that we needed to improve the commercial ability of CSA, and that CSA has product of sufficient quality to be sold for a good price,” said the President of CSA, Radomír Lašák, in answer to the question of why the Cargo Terminal and Catering were selected for divestment.
Divestment does not decrease the value of the company for the shareholder before possible privatisation, and frees up resources for development. This is a standard market solution, which has no influence on the state budget of the Czech Republic. “Any owner would do what we are doing. We are restructuring the company in order for it to be more efficient, for it to have a greater value for the owner, for it to be stronger and more stable, and for it to be able to maintain its position on the market in the event of any new competition entering the game,” added Radomír Lašák. The Cargo Terminal was built in 2003, but its capacity has never been fully utilised. Furthermore CSA, in the current situation, in which it is carrying a great burden from the past in the form of accumulated losses and limited resources for significant development activities, was not able to increase the value of its investment into the Cargo Terminal, for example by its more effective utilisation.
The Transparent Course of the Call for Bids
Potential parties interested in the Cargo Terminal were contacted by CSA via the investment consultant CAIB, at the end of October last year. CSA’s offer to sell the Cargo Terminal and the related commercial activities in freight clearance was received by 101 potential strategic investors in the field of cargo handling, as well as selected financial investors.
This first contact with the investors was followed by the preparation of an information memorandum, which was requested by 27 investors. CSA received preliminary offers at the end of January 2007, from nine entities. The making of a shortlist then followed, of selected companies that evinced sufficient financial strength and proved their experience with cargo handling. These were allowed to perform due diligence. Five of these performed due diligence and received a proposal for final documentation, which was the same for all entities, in order to ensure the comparability of the offers and the transparency of the process. Three interested parties submitted binding offers.
In order to maximise the proceeds of sale, an electronic auction was announced, during which the bidders had the opportunity to increase the originally offered price. Three entities participated in the auction. The highest offer won.