Galileo International, Inc., a popular global distribution system used by Greek travel agents, recently signed an agreement with Cendant Corporation of the U.S. According to the agreement, Cendant acquires all of the outstanding common stock of Galileo for about $2.9 billion. Cendant will also assume approximately $600 million of Galileo net debt.
The company says it selected Galileo because it’s a healthy, growing business despite “dire predictions” of the fate of its main constituency, travel agencies. Yet, says the company, Galileo has done little to expand into the online leisure market, and its booking engine is used by only a handful of sites, such as Trip.com, which it owns, and that’s where we come in.
A spokesperson added that it was too early to speculate on whether or not Galileo, under Cendant, would experiment with pricing for suppliers.
The deal, meanwhile, is not expected to create problems. United Air Lines, the largest stockholder of Galileo with approximately 18% of the outstanding shares, has entered into an agreement with Cendant to support the transaction and has provided Cendant with a proxy to vote the Galileo shares owned by UAL in favor of the transaction.
Furthermore, as Cendant will be a non-airline supplier owning a GDS, it will not be subject to the anti-bias regulations that airlines are subject to.
The acquisition, however, is expected to significantly enhance Cendant’s growth prospects in the rapidly expanding global market for travel services, for several reasons. Cendant, a leader in road-based travel, will now be able to generate transaction fees from air travel, the largest component of travel spending. As well, Galileo will diversify Cendant’s travel revenue base geographically with no foreign currency risk, as over 60% of Galileo’s revenues come from faster-growing international markets, but are paid in U.S. dollars. Other positives mentioned by the company include the expansion of Cendant’s worldwide customer base that will give it greater opportunity to market its Preferred Alliance services to Galileo-connected travel agencies in 43,000 locations around the world.
Cendant says its Preferred Alliance business has built relationships with more than 100 world-class companies that provide its customers with exceptional prices on high quality products and services such as long distance phone service, insurance, computers, furniture and other office products.
As well, Cendant’s existing membership travel businesses will utilize Galileo’s GDS service and Cendant’s extensive network of travel Web sites will also use Galileo’s GDS service to book non Cendant-branded services such as airline tickets. As well, Galileo’s subsidiary, TRIP.com, with its technological capabilities, will enhance the capabilities of Cendant’s comprehensive travel portal affiliate and thus reduce its cost of operation and allowing it to capitalize on the growth in online travel bookings.
Meanwhile, Cendant says it expects Galileo to add about $70 million to $80 million of merger synergies in 2002. The synergies are anticipated to grow to over $100 million in 2003.
Once completed this fall, the deal will combine one of the leading providers of electronic global distribution services (GDS) for the travel industry with a diversified global provider of business and consumer services that has a significant presence in the travel sector.
Besides many non-direct travel concerns, Cendant owns WizCom, which provides switching services for hotel, car rental and tour companies, and Avis Group Holdings, Inc. It also has 6,000 hotels operating under the brands of AmeriHost Inn, Days Inn, Howard Johnson, Ramada and Super 9.