The Apollo Tourism & Leisure Ltd (ASX: ATL) share price is taking off on news it is planning to merge with its New Zealand-based peer.
Apollo is looking to merge with fellow campervan and RV rental, sales, and manufacturing company Tourism Holdings Ltd (NZE: THL).
At the time of writing, the market has bid the Apollo share price up to 69 cents. That's 23.42% higher than its previous close. Simultaneously, the Tourism Holdings share price is surging 5.6% higher on the New Zealand exchange.
Let's take a closer look at the proposed merger and what the resulting company might look like.
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Apollo share price soars on merger news
The Apollo share price is surging due to its plan to exit the pandemic stronger by merging with a peer.
The merger will be all-scrip. Apollo shareholders will receive 1 Tourism Holdings share for every 3.68 (approximately) Apollo shares they own.
That implies a 32.6% premium on each company's shares as of market close on 9 December. It also represents an 18.9% premium on the 1-month volume-weighted average price for each company's stock for the same date.
The merger will leave Apollo shareholders with a 25% ownership of Tourism Holdings.
According to the company, combining the two will create a leading diversified travel company serving Australia, New Zealand, North America, the United Kingdom, and Europe.
Apollo anticipates cost synergies will bring an earnings before interest and tax boost of between approximately $16.2 million and $18.1 million annually.
About 69% of those synergies are fixed costs relating to the duplication of corporate costs or properties.
Additionally, a fleet rationalisation of about 1,250 vehicles should bring a net debt benefit of more than $38 million. There also could be another one-off debt reduction worth about $28.5 million, subject to operational efficiency improvements.
It also expects to face one-off implementation costs of between $3.8 million and $6.7 million.
The merger is subject to Tourism Holdings being able to list on the ASX. It's also conditional on the approval of the Australian Competition and Consumer Commission and the New Zealand Commerce Commission.
They'll also need the okay from the Australian Foreign Investment Review Board, the Supreme Court of Queensland, and Apollo shareholders.
Apollo expects to complete the merger by the end of this financial year.
Major shareholder to vote in favour
About 53% of Apollo's shares are held by its founders, the Trouchet family.
The Trouchets are planning to vote in favour of the merger. They have also volunteered to put 90% of the Tourism Holdings shares they receive in escrow for at least a year.
What did management say?
Apollo Managing Director, Luke Trouchet, commented on the merger:
The two businesses have similar operations and like-minded cultures, and we both strongly believe in the potential of the global RV market. The proposed merger would give us a better platform to meet the ongoing impacts of COVID-19, continue to offer our guests the best combination of products, services and prices possible, and better leverage the re-opening of global travel.
With a more diverse portfolio of brands, strong presences in the key RV travel markets and a more robust balance sheet, the combined business will be better able to capitalise on near-term growth opportunities as borders re-open and cross-border tourism begins to return to pre-pandemic levels.
Still no FY22 guidance
In news that could weigh on the Apollo share price today, the company once again refused to provide guidance. It stated:
While earnings to date in [financial year 2022] gives the Apollo board confidence that Apollo will achieve improved results when compared with [financial year 2021], an underlying loss is still anticipated.
Apollo said it won't provide earnings guidance due to the uncertainty of the trading environment. However, its board noted the merger will place it in a better position to restart its dividend payments.
