Ever since news broke out on his company?s R870-crore cash-and-stock merger with global travel

operator Thomas Cook, Ramesh Ramanathan, MD of Chennai-based vacation ownership and leisure hospitality major Sterling Holiday Resorts, has been busy attending conference calls and meeting people wishing to know the impact of the deal. In an interaction with Sajan C Kumar, he explains why the deal is beneficial for the company. Edited excerpts:

What are the circumstances that necessitated the merger?

See, we didn?t go to the market with a merger in mind. We had, in fact, achieved a stage of improvement over the last three years. A lot of things had changed and we were ready for a positive next year. We achieved a cash-positive position in the just-concluded third quarter and were ready to go to the next level of being a PAT-positive company. So, the timing was right ? we had learnt to stand and were ready to walk. The Thomas Cook deal has given us the ability to run. We were looking for additional funds, primarily to refurbish our resorts and so on. In the process, we met Fairfax Financial Holdings honchos, and they said all their investments will be through Thomas Cook in India. They held discussions with us, and with Siddharth Mehta, Rakesh Junjunwala and Sidharth Subramanian. Everyone felt the deal is going to be a great opportunity for Sterling Holiday?s future.

What brought Thomas Cook to the table?

We are happy that Thomas Cook entered the company not just as an investor. Multiple and natural synergies are going to come in through the deal. Sterling will benefit a lot as the merger will create the largest travel and hospitality company. As you know, Thomas Cook will bring in preferential capital of R187 crore, with which they will get 23.4% stake in the company initially.

Since R187 crore is coming in as preferential capital, which will be converted into equity later, the company will be getting the investment directly into it. That is the difference between this deal and other PE investments into companies.

We went to the market because we wanted funds for expansion, and we ensured that the deal was structured in such a way that funds come into company rather than to stake-holders. Thomas Cook will pick up another 23% from the market and there will be an open offer for around 26%. They want to end up with 60-70% in the company. After that, the merger process will start.

What will be the status of Sterling Holiday after the merger? Will it continue to be a standalone company?

Of course, Sterling Holiday will continue to run independently, with a board of its own. Naturally, the board will comprise representatives from Thomas Cook, and there could be independent members too. Though the company may not exist after some time (which has to be decided by Thomas Cook), it will continue as a division of Thomas Cook. And Sterling Holiday ownership and other plans will continue, and the brand will continue to be there.

It is not like other mergers where the employees and other assets become common following the merger. Thomas Cook is an asset-light company and there is no need to pick up an asset-heavy company like Sterling Holiday for their business. They can continue to grow manifold without this deal ? based on their asset-light business strategy.

Sterling Holiday has been picked for its strength, which is vacation ownership. That will continue and Thomas Cook will continue to do its business.

In which areas do you see synergies?

We will surely exploit whatever synergies are there. From Sterling Holiday’s point of view, Thomas Cook can drive business in segments such as foreign independent travel, MICE and groups. It has 400 officers across the country, which can be leveraged by Sterling Holiday. With Thomas Cook on our side, it gives our business more stability and a lot more credibility. We can sell holiday plans to customers of Thomas Cook, and since they are leaders in foreign exchange, a whole lot of benefits can be tapped. Fairfax, promoters of Thomas Cook, wanted to build separate institutions and want long-term play in each segment.