Universal Travel Undoes Tianjin Acquisition

 |  About: Universal Travel Group (UTRA)
by: China OTC Player

First announced in October and expected to close last month, Universal Travel Group (UTVG.OB) is now saying that it is unwinding its acquisition of Tianjin Golden Dragon travel services ("TGD"), the 29th largest travel agency in China.

UTVG's CEO had this to say: "Upon further due diligence, we determined that the operations of Tianjin Golden Dragon did not meet our parameters and the acquisition of the company was not in the best interest of shareholders."

TGD is the largest travel business in Tianjin, a big city just south east of Beijing. The company specializes in packaged tours including its well known "Parents Tour" as well as honeymoon packages, including those to Hong Kong Disneyland.

While this is a blow, I do not think the financial impact is really that significant. UTVG had earlier announced a guidance of $0.23-$0.24 for FY2007 EPS. It has now lowered that to $0.22-$0.23, a mere one cent difference. Moreover, I suspect TGD is a very traditional (and not-so-progressive) operation. The company has been described as a conference organizer and tour provider, owning 74 tour buses. Ultimately, TGD's operations aren't really that scalable, and may not provide the type of synergy UTVG is looking for. Of course, due diligence could have uncovered something untoward, and the fact that the owners of TGD are so willing to unwind the deal smacks of lack of full disclosure.

To me, management has to be applauded for stopping this acquisition once it is clear it does not match with the company's objectives. What is clearly wasted is the time and effort expended for this transaction, which could have been put to better use elsewhere. But one thing is clear, management is very much focused on building long term shareholder value.

Per CEO Jiang: "For fiscal 2008, our focus will primarily be on packaged tours and e-commerce as a way to accelerate the growth of our air ticketing and hotel reservation businesses ... we continue to view this summer’s Beijing Olympics as a strong catalyst for Universal Travel Group’s performance in the intermediate-term and through the end of the year.”

Also note that with this transaction voided, the company will put back $7.9 million into its acquisition war chest, with $3.6 million of that in cash.

My Position: Long.