Guest Pitch: Webjet Group (WJL:AX)

Potential Takeover — 30% Upside (at A$0.90/share)

This was pitch was shared by Giorgi (and I have also made couple of tweets on the name here and here).

This is a potential buyout situation with a couple of interested parties already sitting at the table. The only official offer received so far (and subsequently rejected) is at A$0.80/share share, and the stock trades already at 10% premium to this offer. The bet here is that we will either see a bidding war or at the very least a higher offer from the current bidder. I expect WJL to get acquired at least at A$1.2/share, or 30% premium to today’s prices.

Webjet Group is a leading online travel agency (OTA) in Australia and New Zealand. The stock recently took a sharp hit, driven by an unfortunate triple-whammy of non-fundamental events:

• Last September, the company was spun off from its much larger parent, which triggered the usual spin-related technical pressures (i.e. WJL was automatically excluded from the S&P/ASX 200), driving the share price down from A$1.00 to A$0.80 on day one.
• This February, the company made a minor regulatory settlement (with a small fee but not great optics).
• This was followed by the removal from the S&P/ASX 300 index in March. Additional forced selling pushed the stock into the mid-A$0.50s, leaving it to trade below 2.5x EBITDA.

This dislocation attracted takeover interest from several prominent local operators and investors.

BGH Capital, one of Australia’s top private equity firms with a strong track record in the sector, partnered with prominent corporate raider Garry Weiss to aggressively build a combined 11% stake in WJL as of mid-May. A large portion of that stake was acquired privately at A$0.80/share, representing a ~25% premium to the market prices at the time. Shortly after, the consortium submitted a formal offer to acquire a “controlling interest” in WJL at the same A$0.80/share. The offer was quickly rejected as too low.

At the same time, travel agency Helloworld (HLO) also began accumulating shares in WJL at around the current share price levels and above BGH’s bid. HLO increased its position from 5% to 10% at A$0.85/share, then again to 15% at A$0.89/share. It was rumored that HLO privately pitched a merger to WJL’s chairman, emphasizing the potential synergies which a PE buyer “wouldn’t be able to unlock”. However, the proposal was also rejected reportedly.

While WJL was initially reluctant to entertain a sale, the tone appears to have shifted a few weeks ago.

The company has recently released its FY25 results, noting that it had suspended the planned share buyback program due to takeover interest from BGH. This implies that discussions with BGH may still be active, and that management could be open to a sale at the right price.

The Company had intended to announce an on-market share buyback today. However, given the recent receipt and subsequent rejection of the non-binding indication of interest from BGH Capital, the Board has determined to defer the implementation of any capital management initiatives.

Then, a few days ago, AFR reported that WJL had instructed its advisers to explore alternative buyers:

Webjet’s board has its advisers UBS and MinterEllison (who else) canvassing what’s left of the institutional shareholders, and seeing what other buyer interest may be out there.

AFR has been spot on with every WJL-related rumor so far, so there’s a good chance this report is accurate as well.

AFR also published an interview with WJL’s CEO that reads very much like a promotional article for WJL, and is clearly angled around the recent takeover interest. It also highlights that the paused buyback has ‘left the door open for more negotiations’.

So, I think that something interesting could happen here in the near term. There are already two interested parties at the table, holding a combined 26% stake, and both parties have been buying aggressively around current levels. Meanwhile, management now appears increasingly open to exploring a sale.

The final intriguing piece of the puzzle comes from The Australian, which reported (paywalled) that BGH and Helloworld may be considering a joint bid for WJL. That would be a compelling angle, as the combined stake is significant and would put real pressure on management. However, AFR recently noted that both WJL’s management and investors aren’t particularly enthusiastic about combining with Helloworld, given its focus on brick-and-mortar operations, while WJL remains committed to its online model. Helloworld, for its part, sees meaningful synergies in a potential merger.

International giants Booking.com and Expedia have been mentioned as potential buyers of WJL as well. However, this speculation has been ongoing for a long time and ‘if it had any legs, Webjet would’ve been sold not spun off by its former owner.’

 

Quick business background

WJL is a dominant local OTA, with a primary focus on domestic flights, where it holds an estimated 50% market share. The company has maintained this position for decades, consistently generating stable cash flows despite competition from global players like Expedia and Booking.com. It has a strong and well-known brand: a company survey showed that 73% of Australians were able to recognize the unbranded Webjet logo.

Historically, Webjet underinvested in its international flights segment, which currently accounts for 20% of total bookings. However, since the COVID pandemic, it has been steadily gaining ground: international bookings have increased from 15% of total volume in FY19 to 20% in FY24. The company now sees this segment as a key growth driver going forward.

The company also operates GoSee, its car rental platform, which is reported under the Cars & Motorhomes segment. This business is significantly smaller than the core OTA operations and reached profitability at the segment level in FY23. GoSee contributes just 14% of total revenue.

Historical financials are provided in the table below (FY22 and FY23 were taken from pro-forma figures provided in the spin-off document):

The limited growth in FY25 has largely been attributed to ongoing headwinds in the Australian flights sector. These include macroeconomic pressures and slightly weaker demand, as well as the collapse of a major domestic carrier Rex Airlines and failure of Virgin and Qantas to ramp up their own capacity to offset the impact.

The company has also launched a 5-year brand revitalization plan, aiming to double its total transactional value by FY30. Key elements are increasing share in international flights, introducing better hotel and package offering and launching a new business travel product.

Online booking penetration in Australia still has a lot of room to grow. Online travel agency penetration in Australia is 22% versus 33% in the US.

 

Quick note on the spin-off

In September, Webjet Group was demerged from its parent, now re-named as Web Travel Group Limited. The parent operates a B2B hotel distribution platform. It was expected that this move would eliminate the conglomerate discount and unlock sum-of-the-parts value for both businesses (this clearly hasn’t materialized yet). In a sense, this is a standard spin-off case. Nonetheless, one of the benefits cited in the spin-off document was making both companies more attractive as potential takeover targets:

A demerged or parent entity may have a better industry specific focus and thus may be more attractive to potential buyers. Shareholders may benefit from takeover offers with a premium to share price for potential synergies).

 

Some thoughts on valuation

WJL doesn’t have any direct peers. The company is the number one player in domestic flights, but is less prominent in international flights, accommodation bookings, and so on. Compared to global players like Booking.com and Expedia, it’s still a tiny business.

Nonetheless, the core business is highly stable and operates at strong margins, comparable to international peers. Global competitors like Booking.com and Expedia run at adjusted EBITDA margins of 20–35%, and WJL sits comfortably within that range at 28%. If we exclude the GoSee segment entirely, Webjet’s OTA business alone delivers EBITDA margins above 30% after corporate costs.

WJL also holds a substantial net cash position of A$118m (roughly a third of its market cap) while peers are levered at around 1x net debt/EBITDA.

Booking.com trades at over 23x adj. EBITDA, and Expedia at 9.1x (excluding stock-based compensation). In contrast, WJL trades at just 6.5x TTM underlying EBITDA, excluding SBC.

So, even with these soft references, it’s not hard to see why BGH, Weiss, and Helloworld have been actively accumulating shares.

As another reference point, the spin-off document valued WJL (although purely for demerger accounting purposes) between A$1.20 and A$1.60/share (page 76). A$1.20/share likely marks the level where management would be inclined to start considering sale of the company.

 

Background of the potential buyers

• BGH and Weiss have entered into a six-month cooperation agreement. BGH Capital, which has A$8bn in AUM, has a strong track record in the space, including a successful investment in TripADeal, acquired by Qantas last year. BGH was founded in 2017 by the former heads of TPG Capital’s Australian operations and has since notched several notable wins, including a A$500m turnaround investment in ForHealth. An interesting point is that BGH/Weiss’ stake filing shows the group started buying shares in December’24, at around A$0.90/share. They bought half of the 11% stake in the open market at an average price of A$0.66/share. The second half was acquired at A$0.80/share in a private transaction.
• Garry Weiss serves on numerous public company boards and currently holds chairmanships in several high-profile firms, including Ardent Leisure and Estia Health. His typical playbook involves securing board control and then driving strategic turnarounds.
• Helloworld is led by Andrew Burnes, who is an industry veteran. 17 years ago, he was involved in a somewhat similar situation, where he took a significant stake in Travel.com.au, an ASX-listed small cap that soon after became a target of a bidding war between Webjet (WJL’s parent) and Wotif.com. Reports at the time suggested that Burnes sought to leverage his shareholding not simply for a quick profit from a higher bid, but to negotiate a joint venture or commercial arrangement between the eventual acquirer and his own portfolio of travel websites. So he seems to be a pretty shrewd guy and his involvement here is positive.

 

Timeline of recent events

• September 2024 – WJL was spun off from a much larger parent, and on the day of its public listing, it was dropped from the S&P/ASX 200, leading to a 20% price decline from A$1 to A$0.8/share.
• May 8 – The AFR released an article stating that an undisclosed entity was attempting to acquire a 5% stake, which would have brought their total ownership to around 10%. The rumored purchase price of A$0.80/share.
• May 9 – WJL management confirmed rumors that an undisclosed party was attempting to acquire up to 5% of WJL shares at A$0.80/share. Later, it turned out that this was BGH Capital and Garry Weiss consortium.
• May 9 – Brick and mortar travel agency, Helloworld, acquired a 5% stake in WJL.
• May 12 – An 11% stake was disclosed by BGH Capital and Garry Weiss. The two parties have entered into a six-month cooperation agreement to join forces in getting control of WJL.
• May 13 – BGH Capital and Garry Weiss consortium unveiled A$0.8/share offer in cash to acquire controlling stake in the company while remaining open for other transaction structures. The stock went up to trade above the offer.
• May 16 – The board rejected the bid due to undervaluation and did not grant due diligence.
• May 19 – Rumors come out that BGH Capital and Helloworld might consider to join forces for combined bid for WJL.
• May 20 – Helloworld increased its stake to over 10%, becoming the largest shareholder of the company. The additional 5% were acquired at A$0.85/share.
• May 21 – The company reported solid FY25 results, but these were impacted by temporary headwinds such as the shutdown of Rex Airlines and general market weakness, leading to a 7% decline in bookings. The company deferred the start of its buyback program amid takeover interest from BGH Capital.
• May 23 – HelloWorld increased its stake once again, this time at $0.89/share, bringing its total ownership to 15%.
• July 1 – Reportedly, the Webjet board has asked its advisors to explore the field for other potential buyers in the market.