M&A Critique
Thomas Cook’s Sterling- Merger & Acquisition

Thomas Cook’s Sterling Move

Billionaire investor Prem Watsa-backed Thomas Cook India had acquired vacation ownership Sterling Holiday Resorts for Rs 870 crore, marking its foray into the hospitality sector. For Thomas Cook, it was the second purchase after Ikya Human Solutions in February 2013. The transaction was structured through a multi-layered process, involving both cash and stock swaps.


The company had set up its first office in India in 1881.Now Thomas Cook (India) is the leading integrated travel and travel related financial services company in the country offering a broad spectrum of services that include Foreign Exchange, Corporate Travel, MICE, Leisure Travel, Insurance, Visa & Passport services, and E-Business. TCIL’s footprint currently extends to over 242 locations (including 23 airport counters) in 99 cities across India, Mauritius & Sri Lanka and is supported by a strong partner network of 134 Gold Circle Partners and 165 Preferred Sales Agents in over 150 cities across the country. Thomas Cook (India) is promoted by Fairfax Financial Holdings Limited through its wholly-owned subsidiary, Fairbridge Capital. Fairbridge is responsible for the execution of acquisition and investment opportunities in the Indian subcontinent on behalf of the Fairfax family of companies.


TCISIL a wholly owned subsidiary of TCIL and a licensed corporate agent for Tata AIG General Insurance Company Ltd (i.e. business of Travel Insurance), now in the whole transaction, it is the resulting company which is to take over the resort and timeshare business of Sterling.


Sterling, which was founded in 1987 as a timeshare holiday provider, has seen a lot of ups and down in its business cycle. It has been hit by the seasonality of the business and also the economic downturn. In 2011, with the return of its current managing director Ramesh Ramanathan (after a stint with rival Mahindra Holidays) Sterling showed signs of a turnaround. Sterling Holiday Resorts (India) is a pioneer in Vacation Ownership and a leading Leisure Hospitality company in India. Sterling Holidays has a total inventory of 1,512 rooms spread across a network of 19 resorts (Corbett, Darjeeling, Dharamshala, Gangtok, Goa, Karwar, Kodaikanal, Lonavala, Manali, Munnar, Mussoorie, Ooty, Puri, Thekkady, Yelagiri and Yercaud) in 16 scenic holiday destinations in India. The company also has 15 additional sites where it plans to add new resorts in the coming years.


The deal was executed in phases which involved part cash and part swap

PHASE I: Investment by THOMAS COOK GROUP into sterling by way of Preferential allotment Rs 187 crore. (At

Rs. 90.49 per share)

PHASE II: THOMAS COOK GROUP acquired 23% of sterling from its existing shareholders (Siddharth Metha, Rakesh Jhunjunwala) at Rs 176 crore. (At Rs. 98 per share)

PHASE III: THOMAS COOK GROUP then made a mandatory open offer for Rs 230 crore (at Rs. 98 per share)

PHASE IV: The final stage merger of sterling business into THOMAS COOK at Swap Ratio of 120:100 as

follows: _ ” Demerger of resort and timeshare business of the Sterling into TCISIL with Swap ratio 116:100 and share

to be issued by the TCIL (a holding company of TCISIL)


­ Amalgamation (i.e. merger) of the residual sterling into TCIL with Swap ratio 4:100.

The deal involved a few stages of share acquisition before Sterling becomes a Thomas Cook group subsidiary (i.e. TCISIL) and then a de-listing & demerging of resort and timeshare business of sterling into THOMAS COOK Group (i.e. TCISIL) and merger of the residual business of sterling into TCIL.


1. It will have a combined customer base of over a million people.

2. Thomas Cook India gained access to Sterling pan-India network of well located, full-service, quality resorts network of 19 resorts in 16-holiday destinations across India. Also Sterling’s affiliation with Resort Condominiums International (RCI) – the global expert in exchange vacations, also allows its members to vacation in over 4000 RCI affiliated resorts all over the world.

  •  Sterling had an inventory of 1,512 rooms spread across 19 locations in the country, which it sells to both members and non-members in a 50:50 ratio. It is banking on Thomas Cook to give a major push to its non-member sales.
  •  It will help both companies move business away from seasonality to a full year mode.
  •  With Sterling, Thomas cook will be looking at providing an end to end travel solution to customers including the foreign exchange and there are a lot of opportunities both at the front end and back end that need to be worked out after the deal is completed.
  •  Sterling stands to benefit from Thomas Cook’s iconic brand reputation and TCIL’s large base of domestic and inbound travel customers.

7. There is also scope to add value to Sterling’s Vacation Ownership members through the synergies that exist between the two companies.

8. Both companies jointly have a market value of Rs 3,000 crore, with 9,000 employees.

9. With the cash infusion through preferential allotment, Sterling Holiday will be able to ramp up the number of resorts and renovate the existing ones. The investment will also improve Sterling’s brand profile and increase customer confidence

Sterling was Lagging behind from the Competitor

Its competitor, Mahindra Holiday Resorts, is the leader in the resort space with more than double the number of memberships and properties than Sterling. It is also adding members faster than Sterling. Competition is growing in the field with the entry of new players such as Magic Holidays and Cirtus Check Inn, which are expanding their presence with investments in properties in India and tie-ups with global chains.

Sterling Holiday went through trying times with high debt till Bay Capital took it over in 2009. Bay Capital Investment’s Siddharth Mehta took over as chairman of Sterling Holiday and brought in Ramanathan from Mahindra Holiday Resorts to run the company. Since then, the company has been making a return of sorts by refurbishing its resorts. It has increased occupancy levels to 52 percent from a lowest of 16 percent a few years back. The company has 70,000 members and gets half of its business from non-member customers. The second round of investment came in 2011 when stock investor Rakesh Jhunjhunwala and Radhakrishnan Damani each took seven percent stake.


Sterling is valued at about Rs 870 crore by the Thomas cook thus the consideration paid by Thomas cook has no much premium. As Thomas Cook has infused around 187crore through preferential allotment current market capitalization of sterling i.e. Rs. 630crore, so the premium is approx. Rs.50 crore. Whereas the total valuation of the after the deal has been valued at Rs. 3000crore. And the current market capitalization of TCIL is approx. Rs. 2000 Cr. So the synergy expected is around Rs. 130crore.


I. Preferential Allotment by STERLING & Share acquisition by THOMAS COOK Group from existing shareholder:

From the information available preferential allotment will be allotted wholly to TCISIL and share acquisition will be done partly by TCISIL & partly by TCIL. Shareholding of Sterling after preferential allotment and share acquisition by Thomas cook group as follows:

After the acquisition and preferential allotment exceeding 24%  by the Thomas Cook group, they have given an open offer on 13the February 2014.

II. Demerger of Sterling resort and Timeshare business into TCISIL & Merger of residual sterling into TCIL Now with the Open offer by the TCISIL & TCIL (PAC1) & TCL (PAC2) after the acquisition and preferential allotment exceeding 24% by the group, they will try to acquire more shares to reduce their dilution in TCIL. But with the Share allotment directly in TCIL instead of TCISIL by Thomas Cook Group, they have passed the risk of TCIL business to shareholders of Sterling also.


Whether Sterling will able to turn-around and benefits from the merger with Thomas Cook will have to be seen in the days to come. As of now, Sterling main business is also kept separate from TCIL same as IKYA Human Capital Solutions (i.e. 74% share acquired by Thomas Cook) and we see Sterling continuing as an individual company under the Thomas Cook brand through TCISIL in time to come. The moot question is whether the  Thomas Cook will merge TCISIL with TCIL business of Sterling grows significantly after the merger.


M & A Critique