Two players — Sterling Holiday Resorts and Mahindra Holiday Resorts — have dominated the vacation ownership business in India for the past three decades.
Sterling, which pioneered the concept in the country, went through a lot of pain due to a combination of factors — going in far too many properties at the same time, debt accumulation, overselling and inadequate handling of dissatisfied customers — all of which have earned the industry a bad name.
Talk to any average ‘time share’ customer and you are quite likely to hear a number of complaints — either the accommodation sought is never available when needed, maintenance charges are revised often, or the costs are so high it probably makes hotels look cheaper.
As Sterling began declining, its rival kept gaining market share steadily and today has twice the number of resorts and customers.
Sterling had begun turning things around after bringing back Ramesh Ramanathan, its first president, from its rival.
Capital infusion over the past five years by a number of investors such as private equity firm Bay Capital and Rakesh Jhunjunwala has helped the company settle many creditors and begin investing in renovating its deteriorating properties.
At this point, there is only a debt of about ₹44 crore in the books, which too will be settled soon, leaving the company debt free after a very long time.
The company’s first priority is to push up occupancy levels that have hovered at 50-65 per cent during the past few quarters. And of course, de-risk the seasonal nature of the holiday business.
This is where the merger with Thomas Cook may come useful. The latter’s inbound clientele as well as domestic customers will now have access to these resorts. Sterling will now be able to use the fund infusion and Thomas Cook’s muscle to look for bigger properties in some locations.
Officials said they were still to discuss many other opportunities, including the online space, the trend towards shorter holidays as well as collaboration at the back-end.
The deal values Sterling Holiday at about ₹870 crore, which will be completed through a multi-stage process.
Thomas Cook will invest approximately ₹187 crore in Sterling through a preferential allotment. It will also purchase shares from Sterling shareholders for ₹176 crore. It will then make a mandatory open offer for ₹230 crore.
The merger will be at a defined swap ratio of 120:100. ICICI Securities was the merchant banker for the deal, while Antique Group was the advisor.
At arm's length Top officials of both companies made it clear there is no intention of integrating Sterling into Thomas Cook and that they will operate at arm’s length. Sterling will continue to run with its own board and with Ramanathan and team continuing.
Ramanathan is of course happy that he is in the process of ‘completing an incomplete job’ and helping Sterling recover lost ground.
Sterling Holiday has a network of 19 resorts in 16 holiday destinations that together have over 1,500 rooms. The company had turned in operating profits in the last quarter.