Duty Free Retailer Dufry Expands With Nuance Buy

June 4, 2014

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Swiss travel retailer Dufry is buying rival Nuance for CHF1.55 billion Swiss francs (USD$1.7 billion), expanding its presence in Asia and cementing its position as the world's largest duty-free retailer ahead of Hong Kong-based DFS Group.

Basel-based Dufry, whose shares jumped more than 8 percent to their highest since an all-time high set in December, said it would tap shareholders for CHF1 billion francs and raise another CHF550 million through debt to finance the deal.

The purchase marks a lucrative exit for private equity group PAI Partners and GECOS - part of Italian retailer GruppoPam - which have jointly owned travel retailer Nuance since a 2011 buyout that valued the company at CHF676 million francs.

Dufry said it plans to squeeze value from the acquisition by joining up logistics and purchasing with Nuance, targeting up to CHF70 million from 2016 in benefits from combining the two firms, which cater for tourists around the world.

"The acquisition... is a transformational deal, not only for Dufry but also for the travel retail industry," said Dufry chief executive Julian Diaz.

Dufry will consolidate its market ranking by sales ahead of LVMH-controlled DFS as the world's largest duty-free retailer after the deal, according to estimates from retail consultancy Verdict.

"Dufry is heavily dependent on North America, so it makes sense for them to make such an acquisition to increase their exposure to Europe and Asia," said Verdict analyst Patrick O'Brien.

Global airport retail spend is expected to almost double to USD$59 billion in 2019 from USD$36.8 billion in 2014, Verdict predicts, driven by rapid growth in Asia, where more than 350 new airports are set to be built in the next eight years.

The number of outbound Chinese tourists hit 100 million last year and is expected to double by 2020, according to a recent report by brokerage CLSA.

Zurich-based Nuance is far less profitable than Dufry and has suffered from losing a contract to sell in Hong Kong, while a concession in Singapore's Changi Airport ends in October.

A concession for Australia expires in February and may not be renewed if the current terms do not improve during its renegotiating, Dufry said.