American Express Co.
) (AmEx) rose 0.6% following the announcement of spin-off of 50%
of its Global Business Travel (GBT) division through a joint
venture (JV) with an investors' consortium led by Certares
International Bank LLC. The decision is backed by the company's
intention to revamp its corporate travel card operations.
Per the agreement, AmEx will retain 50% stake in the JV, while
the group from Certares will hold the remaining share by making
an investment between $700 million and $1.0 billion. The proceeds
will be used for the development of GBT, whose total value is
estimated at nearly $2.0 billion.
Pending regulatory approvals, this JV deal is scheduled to
culminate by mid-2014, following which AmEx is also projected to
realize gains from the transaction. AmEx appointed
) as its lead advisor.
Certares enjoys expertise in the global travel industry, led
by a veteran chief investment officer of
JPMorgan Chase & Co.
). On the other hand, GBT embraces a wide scale of operations
with its business in over 138 countries. In 2012, GBT generated
$1.94 billion in global commissions.
However, AmEx is facing challenges in competing with the
steady shift toward online travel agencies and other digital
services in the industry, which are primarily based on higher
operating costs. Higher expenses also impelled the company to
slash its headcount, primarily in the travel business, by about
5,400 in Jan 2013. Consequently, employee headcount is expected
to decline by 4−6% in 2013.
The latest JV deal blends well with AmEx's strategy of
accelerating its travel business, which constitutes corporate
travel spending of more than $19 billion. Moreover, the enriched
industry experience of both the parties involved in the JV is
expected to swiftly improve its business-to-business payment
solutions and create valued synergies, while also enable the
expansion of its corporate client base.
Predicaments to engage in non-financial activities owing to
banking regulations also impelled AmEx to divest its publishing
business to Time Inc., a division of
Time Warner Inc.
), earlier this month, for an undisclosed amount. The deal is
slated to close by the end of 2013, subject to customary closing
Hence, we believe such restructuring will help AmEx
consolidate its overall business and enhance its operational
leverage. Along with AmEx,
) carry a Zacks Rank #2 (Buy).
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