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SABRE
ANALYST CONFERENCE CALL
AUGUST 28, 2000
10:00 A.M. CDT
THIS TRANSCRIPT IS FOR INFORMATIONAL PURPOSES ONLY. IT DOES NOT CONSTITUTE
AN OFFER TO PURCHASE SHARES OF GETTHERE OR A SOLICITATION/RECOMMENDATION
STATEMENT UNDER THE RULES AND REGULATIONS OF THE U.S. SECURITIES AND EXCHANGE
COMMISSION (THE "SEC"). AT THE TIME SABRE COMMENCES A TENDER OFFER, SABRE
WILL FILE WITH THE SEC A TENDER OFFER STATEMENT AND GETTHERE WILL FILE WITH
THE SEC A SOLICITATION/RECOMMENDATION STATEMENT IN RESPONSE TO THAT TENDER
OFFER. THOSE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION AND SECURITY
HOLDERS OF GETTHERE ARE ADVISED TO CAREFULLY READ THOSE DOCUMENTS (WHEN THEY
BECOME AVAILABLE) BEFORE MAKING ANY DECISION WITH RESPECT TO THE TENDER OFFER.
THE OFFER TO PURCHASE AND OTHER OFFER DOCUMENTS INCLUDED IN THE TENDER OFFER
STATEMENT, AS WELL AS THE SOLICITATION/RECOMMENDATION STATEMENT, WILL BE MADE
AVAILABLE TO ALL SHAREHOLDERS OF GETTHERE AT NO EXPENSE TO THEM. SECURITY
HOLDERS MAY OBTAIN A FREE COPY OF THE SOLICITATION/RECOMMENDATION STATEMENT
(WHEN AVAILABLE) AND OTHER DOCUMENTS FILED BY GETTHERE OR SABRE WITH THE SEC
AT THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV. FREE COPIES OF THE
SOLICITATION/RECOMMENDATION STATEMENT, ONCE AVAILABLE, AND OTHER FILINGS BY
GETTHERE WITH THE SEC MAY ALSO BE OBTAINED BY DIRECTING A REQUEST TO GETTHERE
INC., 4045 CAMPBELL AVENUE, MENLO PARK, CALIFORNIA 94025, ATTENTION:
INVESTOR RELATIONS, TELEPHONE: 650.752.1500.
Coordinator Good morning and welcome to the Sabre Corporation's
conference call to discuss the Company's strategic
refocusing and cost cutting initiatives as
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well as its proposed acquisition of GetThere. At this
time, all participants are in listen only mode. Later we
will conduct a question and answer session and instructions
will follow at that time. As a reminder, this conference is
being recorded and will be available via an Internet Webcast
by Sabre.com. The host of today's call is Bill Hannigan,
Chairman and CEO of Sabre Holdings Corporation.
Before Mr. Hannigan begins, Sabre reminds all of you that
comments that will be discussed today on future matters,
such as the proposed acquisition of Gemini, anticipated cost
reductions, and forecasts of growth in revenues, earnings or
bookings will constitute forward-looking statements. These
matters are, of course, subject to a number of factors that
could cause actual results to differ materially from
expectations. These factors are described in the Company's
news release and financial statements. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements.
I would now like to introduce Mr. Hannigan. Please go
ahead, sir.
B. Hannigan Thank you all for joining us. Now that you know what the
code name we use for GetThere was. Obviously we want to
talk about the proposed acquisition of GetThere and not
Gemini. I'm here with Jeff Jackson, our CFO, and Sam
Gilliland, our Chief Marketing Officer. We also have on the
call with us, I'm very pleased to say, Gadi Maier,
GetThere's Chairman, President and CEO.
This morning we made several important announcements: a
company wide cost cutting initiative, a redefinition of our
market focus, and the outsourcing at Software Solutions
business, and an important acquisition
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in the travel, marketing, and distribution arena. These
announcements each strongly support Sabre's goals of
long-term growth and profitability.
I'd like to start by discussing the launch of our worldwide
cost cutting program. As many of you know, we've been
taking a hard look at our company over the past several
months, reviewing how we can improve both our growth
strategies and our operating efficiencies. Our in depth
analysis included benchmarking against our competitors and
peers. As a result of this process, we're initiating a
worldwide strategic cost cutting plan that's aimed at
reducing overall operating costs and allowing us to continue
investing in existing and new market opportunities that
would drive faster growth and enhance profitability for
Sabre.
We expect this global cost cutting plan will generate
approximately $100 million in annual pretax savings in 2001.
To achieve this target, we intend to: a) eliminate
duplicative activities; b) leverage resources across the
organizations, so that we can operate more efficiently and
cost effectively; and c) reduce approximately 1,200
positions from our current employee base of roughly 10,500
people.
We'll achieve the job reductions over the next several
months through attrition and layoffs across all of our
organizations, with the U.S. being a key focus. We estimate
the program to result in a one-time charge of approximately
$20 million before taxes, mostly related to severance and
out placement costs. We plan to take this charge in the
current quarter.
This cost cutting initiative is an integral part of a new
strategy we designed to ensure that we maintain our
leadership position as a premiere technology company for the
travel and transportation industries. We have redefined our
market focus to capitalize on unparalleled strength in the
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electronic travel and marketing distribution channel, and
the IT services arena. In essence, through this strategy we
will enhance our operating efficiencies and flatten the
organization so we can increase our speed and agility, which
are key competitive advantages in today's marketplace.
We set an aggressive goal to be the world's leading
electronic travel distributor and a world-class travel
marketer touching and enhancing the experience of every
traveler. As part of that goal, we're committed to staying
ahead of the curve of the rapidly changing markets we serve.
First, we will continue to take actions to extend our
business and travel distribution and expand our travel
marketing business. There's some great opportunities in
this area as you've seen from today's GetThere announcement
and other recent acquisitions for enhancing our abilities to
deliver tools to our customers that will enable one to one
marketing and stimulate demand in these high growth
channels.
Second, we also see strong growth opportunity in the areas
of software, reservations hosting, and Web hosting. This
draws on our competencies in airline software solutions and
our understanding of airline IT. And it allows us to
leverage our strengths in high value, high margin areas.
Third, we're changing the way in which we bid for large IT
out sourcing contracts. We will no longer go it alone when
bidding for facility management opportunities. These
pursuits require considerable time and resources and by
their nature do not provide the same opportunity for value
creation as do our other businesses.
Instead, we'll partner with complementary IT firms to bid
for those types of contracts with Sabre focusing on the
areas that rely on our software, consulting, multi-host, and
Web hosting capabilities. A good example of
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this taking place as we speak is the Air Canada RFP. We're
teaming with CGI to go after this opportunity. We believe
that this type of partnering will allow us to focus on our
core competencies and produce predictable revenue and
earnings growth going forward.
It's important to note, however, that we're fully committed
to supporting and actively growing our current customers in
this area.
Fourth, our software business is more important to us than
ever before. We need to continue to take actions to further
develop our high-end capabilities. We're the market leader
in airline software and we have a long history of airline
solutions innovation. To stay in the lead, among other
things, we need to draw on our skills in the software
business and invest to standardize and further productize
our software solutions in an integrated suite to increase
sales and margins in that business.
I would like to talk a little bit about the tremendous
growth opportunities in online travel. According to
Forrester research, online travel distribution in the U.S.
is expected to reach over $29 billion by 2003, almost ten
fold the 1998 level. That's with online travel still in its
infancy. Today, online travel represents only a small
portion, a small percentage of total travel sales. By 2003,
it should be at least 10% and is anticipated to grow
rapidly.
With this particular acquisition, which I'll talk about more
in detail in a minute, Sabre will be the undisputed leader
in all channels of travel distribution, including: 1) the
traditional travel agency channel; 2) the consumer online
channel with Travelocity; 3) corporate online travel systems
with GetThere and Sabre BTS; and 4) supplier direct with our
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own efforts as well as those of GetThere. There's a lot of
room for us to grow our business.
Our transaction with GetThere is a perfect example of this,
so are the other recent acquisitions, including Gradient
Solutions and our 51% interest in Dillon Communications
Systems based in Germany, and a merger earlier this year of
Preview Travel and Travelocity.com.
And now I'd like to turn the very exciting news of the day,
GetThere, and tell why we're acquiring the company and how
it fits into our overall strategy for profitable growth.
Merging GetThere with our Sabre Business Travel Solutions
unit is a strategic move that sends a very clear signal that
we're serious about being the premiere electronic travel,
marketing, and distribution company in all channels. I made
the comments in the past about our strategy to double down
on our strengths in this business. This action certainly is
in keeping with that strategy.
For those of you who are not familiar with the online
corporate travel industry, companies like Sabre BTS and
GetThere provide a technology platform that allows
corporations to lower travel costs by reducing corporate
travel agency fees and enhancing enforcement of corporate
travel policies. They also enable corporate customers to
better manage the corporate travel process by allowing
integration of key data into their systems to facilitate
expense reporting, accounting, and other administrative
functions. Online corporate travel is an extremely fast
growing channel with enormous potential for even stronger
growth in the future.
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According to Forrester Research, the managed online
corporate channel represented $1.6 billion in travel sales
in 1999 and is expected to grow to $11.3 billion by 2003.
The fast pace growth of online corporate travel is reflected
in the extraordinary growth of both BTS and GetThere.
Travel transactions booked with BTS are increasing at a rate
of over 250% year over year. And in the first quarter of
this year, GetThere reported revenue growth of 180% over the
first quarter of 1999.
The corporate online space is very competitive, but two
leaders have emerged - our BTS team at Sabre and the
GetThere team. There will no longer be any argument about
who leads in the online corporate travel channel because
this merger will establish Sabre as a leader in both online
corporate travel as well as e-commerce travel platforms for
airlines, suppliers and agencies.
By combining the strengths of both companies, we will
provide the most powerful and flexible online platform for
managing corporate travel in our industry with the broadest
range of services and content. We will also significantly
expand our capabilities in Web development and Web hosting
for travel suppliers and travel agencies.
In addition, the transaction will provide us GDS-independent
connectivity and will position Sabre to become the leader in
supplier-direct distribution models. The combined business
will benefit from an unparalleled roster of Blue Chip
customers. Corporate customers like Cisco, Citicorp, Dell,
GE, Lucent, Nike, and Nortel, and airline customers like
United, America West, US Airways, and Swiss Air. No other
company in the travel industry can cite such a long list of
premier customers. Bottom line, the combination of these
two leaders represents a unique opportunity to create
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significantly enhanced value for the shareholders of both
companies. The combination created enhanced revenue
generating opportunities in a rapidly changing global travel
distribution market, positioning Sabre to be a strong
competitor in online travel distribution channels.
We also expect the combination to generate cost synergies in
marketing and overall general administrative expenses. The
combined entity will have estimated 2000 revenues of $50
million. This transaction, combined with the cost cutting
initiative outlined earlier, is expected to be neutral to
Sabre's earnings in 2001 excluding goodwill amortization
[clarification - and certain noncash compensation related
charges]. This all cash transaction, which was unanimously
approved by GetThere's Board of Directors, is valued at
$757 million or $17.75 per GetThere share. We expect to
launch the first step tender offer in the week of September
4th. We expect to close in the fourth quarter of this year.
The transaction is subject to customary closing conditions.
The new company will be based in Menlo Park, California, Get
There's current headquarters. We'll also have a large
presence in Fort Worth where BTS is located. GetThere also
has a location here.
I'm pleased to report that Gadi Maier, GetThere's Chairman,
President, and CEO, will be President of the new
organization and Scott Smith, Senior Vice President and
General Manager of Sabre BTS, will have a significant
operating role with the new company, reporting to Gadi.
I look forward to working with Gadi and his talented team
to take this company to its next level of growth. With
that, I'll turn it over to Gadi. He will share a few words
with you. Go ahead, Gadi.
G. Maier Hello. [Discussion of technical problem with conference
telephone line.] I apologize for all this. Again, I want
to reiterate how excited I am about
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the opportunity here. I think this is a wonderful
development for our customers, the shareholders, and the
employees of our company. I'm very excited about this.
We're going to bring together two great companies and key
players in the online corporate travel channel. And we're
going to be together establishing the leading e-commerce
platform for both corporations and travel suppliers, merging
the best of breed technologies, knowledge base, and
wonderfully talented people to further enhance the
opportunity for growth within this channel.
I'm very eager to take on the challenges of leveraging our
leadership role in this fast growing travel channel and I'm
looking forward to exploring new avenues of revenue and
profit growth. The increased scale and scope of the combined
entity will create a highly scaleable infrastructure and
produce a number of synergies that will enhance top and
bottom line performance and accelerate our profitability.
We're absolutely convinced this will create value for our
shareholders.
In the near term, my team and I will be very focused on
ensuring that the eventual integration of the two companies
go smoothly for our customers and our employees. We intend
to take the best practices of both companies and migrate to
a new platform with a goal of creating significant benefits
for our customers.
And as a GDS independent company with strong relationships
with the airlines, innovative technologies, and a strong
position in global travel distribution in the overall
industry, we are completely convinced we'll create a company
with capabilities that very few if anybody could match. So
I'm looking forward to working with Bill, Scott, Sam and
Jeff and all the
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other members of the Sabre management team to achieve the
ambitious goals that we set for this exciting new company.
With that, I'll turn it back over to Bill.
B. Hannigan Thanks a lot, Gadi. Can you hear me?
G. Maier Yes.
B. Hannigan Can the audience hear me?
Coordinator Yes, they can, sir.
B. Hannigan As we know, this first challenge is not an omen for this
terrific transaction and terrific combination. Thanks a
lot, Gadi.
Stepping back a moment, I'd like to reiterate that the
initiatives that I've outlined this morning, our new growth
strategy and company wide cost cutting plan and our merger
with Get There are all aimed at enhancing our ability to
deliver long term value to our shareholders. With that, I'd
like to turn the call over to Q&A.
Coordinator Thank you, sir. At this time, we're ready to begin the
question and answer session. Our first question comes from
Bob Johnson.
B. Johnson I was wondering, given the strong position of both GetThere
and BTS, do you anticipate any antitrust issues creeping up
here? If not, why not?
B. Hannigan Bob, thanks for your question. I don't anticipate any
challenges. Why not would be that while we certainly have a
leadership position, we also have competitors such as
Oracle, SAP Travel, Microsoft's Expedia, quite a few
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competitors in a field that currently is 1% of the travel
market. Certainly growing fast, but 1% of the travel
market.
B. Johnson Okay. Thank you.
Coordinator Thank you. Our next question comes from David Togut.
J. Santoriello Good morning. This is Julie Santoriello for David Togut. I
was wondering if you could tell us a little bit more about
the background of the deal and what led to your acquisition
at this time?
B. Hannigan Well, Julie, certainly we've been in serious discussions for
a few weeks now, but Gadi and I have known each other for a
while. We certainly saw GetThere as a key competitor in the
marketplace. They've done some good things. Our team has
certainly done some good things. As we said earlier, when
you look at the list of Blue Chip customers in the Fortune
500 and you look at the supplier arrangements that we have
in place, this is a pretty powerful combination.
We're excited about the opportunity from a culture
perspective as well as our team's working well together.
Because as you know, that is the most important thing
relative to the success of a merger, it is the ability of
the teams to work well together. I feel terrific about
the GetThere team. Gadi, do you want to add anything?
G. Maier Yes. I think that this is a logical integration opportunity
for us to combine two good companies that I think will move
to profitability more quickly and provide great new
technologies to the marketplace. It's something that
certainly, Bill and I have talked about this, as he's said
for a while, it's something that we've seen as being a very
strategic direction for our company to be
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able to align with a very strong company. This gives us an
opportunity to pull those two things together.
J. Santoriello Are there any changes or roadblocks that you were seeing the
market that brought you two together?
B. Hannigan I think obviously when you look at it from a supplier
perspective, Web development, Web hosting, and we look at
the corporate online space, both companies were experiencing
a nice rate of success.
J. Santoriello Thank you.
Coordinator Thank you. Our next question comes from James Turkenson.
L. Coates Hi guys. This is Larry Coates. How are you?
B. Hannigan Hi Larry. Long-time, no see.
L. Coates Bill, can you spend a few minutes and talk about the
financial side of this thing? First, I think GetThere
became public less than a year ago. I'm assuming they still
have some cash on the balance sheet. If you have that cash
out, what are we paying here? That's the first question.
The second is I'm having a little trouble reconciling the
fact that we're taking $100 million worth of savings out of
the system. But if I look at the projections for GetThere
by the Street, it seems that the projections for next year
are for them to lose about $40 million to $50 million.
Where is the extra $50 million going?
B. Hannigan Interest, Larry. When you look at the cash and the balance
sheet with GetThere, the net/net of it is about $600
million. It is an all cash deal. As you know, we have a
strong cash position. We generate strong cash and
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certainly we believe our stock price is cheap and therefore
preferred to go with the cash out, not to mention from an
operating perspective, certainly it gives us an opportunity
to close the deal faster and get on with it.
L. Coates Just a follow up question. What percentage of the bookings
at GetThere are currently going through the Sabre GDS
system? How does that break down? What percentage are
going through other GDS's and what percent are going direct?
B. Hannigan I'm going to kick that to Gadi, Larry, but I do want to make
a comment there. Part of what makes this combination very
interesting to us is the opportunity to have a multi GDS
platform and GetThere brings that to the table. Go ahead,
Gadi.
G. Maier We don't specifically announce the percentages, but roughly
the percentage that's on the Sabre system is about 25% at
this point. So as Bill said, one of the things that we want
to make sure is clear to customers and the marketplace is
that this allows independence to remain as a key element of
our strategy. Sabre is one of the systems as well as we
have other connectivity to all the other major GDS's.
That's still an important part of that.
B. Hannigan Thanks, Gadi. One thing I'd like to add to that, Larry, is
that this deal is not about booking fees. This is all about
a significant presence with the suppliers and with the
corporate customers. So it's a different view of the world
from a channel perspective.
One of the other things that we didn't mention was the
importance of the alliance in small and medium biz of one of
the board members of
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GetThere, which is American Express. That's certainly good
news for us as well.
L. Coates Good. Thank you.
Coordinator Thank you. Our next question comes from Kingston Chu.
K. Chu Hi. Good morning. I was wondering if you could talk a
little bit about the financing for the acquisition and also
if you've gotten any lockup agreements in place for the
insider's shares?
B. Hannigan As far as a lockup agreement, that will be filed in the
merger document. Jeff, do you want to talk about the
financing?
J. Jackson Yes. We have committed to financing from a group of banks
to close this transaction. That's as far as I'll elaborate
on that side. We're confident that the financing will be in
place at closing.
K. Chu Is there a financing condition in the agreement?
J. Jackson I can't comment on that until the merger documents are
filed.
K. Chu Okay. Thanks.
Coordinator Thank you. Our next question comes from Peter Vogel.
P. Vogel Can you speak to the fundamental difference between some of
the consumer oriented travel sites versus some of the
business to business sites, specifically where GetThere is
focused, obviously on a B2B, but is there the ability to
also serve the consumer markets?
B. Hannigan Well, part of how GetThere serves the consumer market is
with supplying the direct capability for suppliers, and Gadi
can talk about that in a second.
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And certainly from the Sabre perspective, our Travelocity
company is very focused in the consumer space, and also has
about 30% of its travel coming from unmanaged, small, and
medium business. But again, when you look at the supplier
space, which are the Web booking engines for the airlines
and agencies, that is where GetThere has done a very nice
job.
P. Vogel Who would be the big competitors in the Web booking space?
S. Gilliland If you look at the Web booking, Web booking tool technology,
other competitors in this space are the likes of Datalex,
IBM, Microsoft, many of the companies that are in the Web
development business itself or provide Web tools are
providing tools to the travel industry as well.
P. Vogel Thank you.
Coordinator Thank you. Our next question comes from Luga Epolido.
L. Epolido I'm with Chesapeake Partners. Just if I can follow up with
one of your earlier comments. You mentioned standard
regulatory approvals. Does that just mean Hart-Scott Rodino
or is there anything beyond that involving the Department of
Transportation or any other bureaucracy?
B. Hannigan Good question. DOJ and SEC.
L. Epolido Thank you.
Coordinator Thank you. Our next question comes from Oscar Wu.
O. Wu In terms of the background of the transaction, can you tell
us how the transaction came together? Did GetThere go
through any kind of sales process or at least the market
testing?
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B. Hannigan I would not want to comment on the specific discussions that
we had between our companies as far as the negotiating
process is concerned.
O. Wu Okay. But can Gadi speak to whether or not GetThere had
discussions with other potential parties to engage their
interest?
G. Maier I think at this point, the most I can say is, certainly,
we're very pleased with the transaction. We feel that we
did a thorough evaluation of whether this is a fair value
for the company and the shareholders and felt very good
about that.
O. Wu Okay. Thanks.
Coordinator Thank you. Our next question comes from Bob Johnson.
B. Johnson I have a couple of questions. One is for Gadi. The two
companies have been throwing mud at each other pretty
dramatically over the last two or three quarters... saying
the other ones numbers are less than factual. I'm just
wondering, as the businesses come together is there any bad
blood that has been created here culturally that's going to
be hard to offset?
G. Maier I think that's a pretty easy one to answer. From the
outside, it may have appeared that way but actually, I think
the real competition is not each other, but it's the
traditional methodology, which really still represents 99%
of the market. I think there's an awful lot of mixed blood
already between the companies in terms of individuals who
have worked in both places. Actually, it's a very good
personal relationship. So I don't anticipate culturally or
personally any challenges. Again, the real focus is that
99% of the marketplace, which is still doing business the
old fashioned way, and of course the slew of competitors out
there, the Oracles, the Microsofts, and so on, those are
really the competitors.
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B. Johnson Then for Jeff Jackson, we were talking about this rather
large cost cutting program for next year. I assume it's
going to be implemented over a period of time here. I'm
wondering if I have to worry at all about my second half
numbers, given your plans for the cuts kind of rolling out
here slowly.
J. Jackson Bob, a couple of things I would say. One is that a good
portion of the cost cutting is going to occur in the third
quarter and further in the fourth quarter; not all of it,
but a number well, well in excess of 50%. All I can say on
the fourth quarter is it is dependent somewhat on the timing
of the closing on this transaction. If it closes very early
in the quarter it may have a dilutive impact for that
quarter. But again, for the fiscal year 2001, we expect the
cost savings to fully offset the combined earnings in the
two companies. [Correction - For fiscal year 2001, we expect
the cost savings to fully offset incremental losses from
acquiring GetThere.]
B. Johnson Jeff, this is a business with normally a fair amount of
efficiencies, but just given the magnitude of the kind of
cuts you're making, is it going to impinge upon the revenue
producing capabilities of core Sabre next year. Or will we
have to pull down our revenue estimates?
J. Jackson No. Absolutely not. This is a cost cutting effort which
goes across the company and leaves virtually untouched the
revenue generating capabilities of the company. It's about
efficiencies. It's about being lean. We did a lot of
benchmarking work with management in the management ranks.
So it's really focused on those kinds of cuts as opposed to
revenue generating programming.
B. Hannigan And as a logical outflow, some of you who were on our call
last June with the restructuring of the company to be more
focused on our customer sets
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in a business structure. We also talked on that call, I
believe, about flattening the organization from nine layers
to six. So it's not about undermining our ability to
generate revenue. It's about enhancing our ability to move
more quickly. Again, we did spend a lot of time scrubbing
the organization and finding the opportunities.
B. Johnson Great. Will the cost cuts be fairly equally spread between
the outsourcing business and the conventional reservations
business? And even Travelocity, if you throw that in the
mix.
B. Hannigan Certainly not in Travelocity. You've seen and I've talked
a little bit about this morning and the shifted focus in the
OSS business. And so certainly, if we're not going to go
alone on large facility management deals that you would
expect that the cuts would be there, but also in the staff
groups across all of Sabre.
B. Johnson Thank you very much.
Coordinator Thank you. Our next question comes from Douglas Horell.
D. Horell I just want to get a comment as to the acquisition in terms
of all cash payment versus a combination of stock and cash.
And also, how much would this amount to on the dilution
basis?
B. Hannigan As far as the all cash is concerned, I commented earlier
that we believe our Sabre stock is cheap, therefore, using
cash is less dilutive. We do have strong cash generating
capabilities within Sabre.
Coordinator Thank you. We do have a follow up question coming from
Peter Vogel.
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P. Vogel Can you get a question from GetThere as to why they chose
all cash as opposed to some stock, which would have let them
participate in the upside?
G. Maier The question was why was the transaction cash as opposed
to...
P. Vogel I understand from the Sabre group's standpoint why they
wanted to pay for this transaction in cash. But from
GetThere's standpoint they're cashing out here without the
ability to share in the upside. Maybe GetThere can speak to
that.
G. Maier I think this is a decision that was made, a Board decision
that was made, and I probably can't give you too much view
into that. I think as I said before we believe it was a
very fair transaction. There were certainly some
limitations in some of the partners that prohibited stock
ownership to a degree and we believe that, going forward,
this would be a very suitable approach to the merger.
P. Vogel Have any other large partners, American Express, United
Airlines, are they aware of this? Were they made aware of
this? Then have they agreed to tender their shares here? I
know it was mentioned earlier that that'll be disclosed in
the tender document.
B. Hannigan Right. And you will, and Gadi I'm sure will make a comment
on this, you will see that in the merger documents. But I
am very comfortable saying that American Express and United
were both very supportive of this deal.
G. Maier Yes. We have both members of the American Express executive
team as well as members of the executive ranks of United who
sit on the board of GetThere, so they were involved
throughout and as Bill said, very supportive.
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P. Vogel Thank you.
Coordinator Thank you. Our next question comes from John Levin.
J. Levin My question's been answered. Thank you.
Coordinator Thank you. Moving on to our next question from Michael
Mariati.
M. Mariati You say it's a fair price, can you discuss and analyze for
us why it's a fair price at $17.75 and also the timing from
your side less than a year of going public?
G. Maier I think the opportunity here is a very significant one. The
market as I've said is still 99% doing business in the
traditional technologies. There is an opportunity here for
two companies to combine and get a tremendous amount of
leverage in terms of cost savings and synergies in
technology that I think can advance the state of the art. I
believe that the real challenge here is to continue to grow
the online travel business and particularly from the
corporate perspective, which is a very big focus of what
we're doing. Again, we also are participating in the
supplier side as a significant place and the consumer
marketplace.
So if you look at the real challenges and opportunities it's
a very, very large part of the market, which is still using
the traditional methodology. That's always been our goal,
which is to revolutionize the way the business is done and
put that more and more over the Internet to make the
Internet the way that the majority of all bookings in the
corporate space are made.
So this gives us, I believe, an opportunity to accelerate
that and something that we have been very interested in for
some time trying to figure out
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what we could do to help drive that business. This is a
great opportunity. I think it's a very exciting time for us
to be at to going out and growing that business.
M. Mariati I'm sorry. You didn't answer my question on the price, your
analysis on how $17.75 is fair and why did they? Also I'll
add the $50 million run rate, the calculation that we have
is that GetThere is bringing $38 million of that $50 million
2000 revenue. So your position clearly is one of leadership
and one that has significant advantage over your BTS
partner.
B. Hannigan This is Bill then I'll kick it to Gadi. I don't know how
much you want to talk about the fairness opinion. But
obviously we all have bankers as well and looking at what is
and isn't a fair price. But certainly when you look at the
run rates it's real important to understand that you are
looking at apples and oranges because our Web hosting, Web
development business is separate from BTS. We have never
reported BTS as a standalone being part of Sabre. So as we
get through the integration planning, we'll get more crisp
as far as the revenue flows from the various business units
of Sabre.
G. Maier I think for my part I want to be careful about how we direct
this question. It isn't relative position with BTS. It's
the combined entities' relative position and the opportunity
in the market to go more and more online. So I think that
that really ought to be the focus rather than the relative
position of GetThere and BTS in terms of the combined
revenue.
M. Mariati Unfortunately for the public shareholders of GetThere we
don't get to participate from the back-end of this agreement
that's why the focus is on the front-end for us.
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PAGE 22
G. Maier Yes. I think the answer to your question is we considered a
variety of transactions. We looked at them very carefully.
This was not a rush decision. It was a very deliberate
decision. We talked to a lot of companies and talked to a
lot of people, looked at the opportunity. We believe that
the combined entity is going to have a very, very good
opportunity to move into a high growth marketplace with a
great amount of leverage and believe that that's in the best
interests of the company.
Coordinator Thank you. Our next question comes from Peter Dersarkesium.
P. Dersarkesium Thanks for taking the question. I really have two
questions. One would be on profitability and the second
would be on goodwill. On profitability, when or what
revenue level do you think you'd have to achieve to become
profitabile at the business travel services?
B. Hannigan Yes. I think that we will get, again, more specific with
the integration after we actually close the deal. But
certainly our expectation is that we'll from an operating
perspective turn positive in 2001 and accretive in 2002
[clarification - by the end of 2002].
P. Dersarkesium There's squeaking. What did you say about 2002?
B. Hannigan They're 2002 accretive [clarification - by the end of 2002],
2001 positive from an operating perspective.
G. Maier Operating income.
B. Hannigan Operating income.
P. Dersarkesium All right. So 2002 you're saying positive earnings.
B. Hannigan Yes.
[clarification - positive operating income]
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PAGE 23
P. Dersarkesium The second question was goodwill. What's the total amount
amortization period and then the amount per share, per TSG
share per year?
J. Jackson The total amount is about $590 million over five years.
P. Dersarkesium Five years, wow. And 120, that's close to $0.90 a share, is
it?
J. Jackson Yes.
Coordinator Thank you. Our next question comes from Matt Fassnacht.
M. Fassnacht Following up on the discussion about the neutrality of
GetThere. I would think one of the more interesting parts
of this like when you bought Preview is that you can
generate more core bookings. What's the thought there in
maintaining that neutrality or actually gaining more market
share as the business comes online to the corporate travel
solutions?
B. Hannigan Matt, I'm sorry. I missed the beginning of your question.
M. Fassnacht Why maintain neutrality or why push that point so hard with
GetThere, their platform versus this could be a nice
opportunity to drive more core Sabre CRS bookings?
B. Hannigan Part of it is that this is a corporate marketplace that
often has a lot to say about who is and isn't the engine as
far as their decision making is concerned. So it's, I
believe, real important for us to be as successful as
possible in the corporate arena to give the market what they
ask for, which they sometimes do.
M. Fassnacht With that said, do you think more business will come to you
now with your ownership of it?
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PAGE 24
B. Hannigan An important part of the arrangement going forward, and
again, to my earlier point, is the GDS neutrality as far as
our sales efforts are concerned. Gadi, I don't know if you
want to comment or not?
G. Maier Yes. I think, again, it's exactly the right answer. We're
focused on getting more customers and I think we certainly
believe that we'll advance the capabilities of the companies
to go and provide better and more services to the
marketplace. A large number of the marketplace is oriented
towards Sabre. So I think probably we will certainly see a
lot more Sabre customers coming on. I think that the
percentage will be determined by the preferences of the
customers. But certainly the growth opportunity to go out
and reach more companies should be enhanced and therefore we
should see more bookings.
M. Fassnacht And as it relates to synergies with the merger, are those
included in the "neutral impact" on 2001 or are there
additional savings in development marketing, etc., that may
come?
B. Hannigan There certainly will be savings that will come, but they are
not included. We haven't gotten that specific because
certainly a $100 million savings number is the big number as
far as looking out over 2001 and beyond from a savings
perspective.
M. Fassnacht And as it relates to the layoffs, could you give us sort of
a better breakdown of where they're going to come from? The
reason I'm asking this is I wonder what part of this is
related to the new IT services strategy. Is there a
capacity reduction relative to not wanting to land large
outsource contracts?
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PAGE 25
B. Hannigan Maybe you weren't on earlier, Matt, but what I talked about
there was I don't want to get business unit specific. But
certainly the change in focus in ITS will have an impact,
but there are key elements of ITS that we are going to
double down on, such as software Web hosting and the
reservation application. But the cuts really are company
wide. The only area that I would take it to the next level
of saying it's pretty U.S. specific because globally we want
to get a greater presence globally. That certainly was
reflected in the acquisition of Dillon and Gradiant
recently. So pretty U.S. based, but across all business
units and staff organizations.
M. Fassnacht Thank you.
J. Jackson This is Jeff Jackson. I want to go back to a question a
couple of questions ago about the EPS impact of the
goodwill. I think it's about, on an after tax EPS basis,
about $0.65.
[Correction: In this transaction, the impact of goodwill is
not deductible for tax purposes, therefore, the impact to
EPS is $.88 per share]
B. Hannigan That question was cut off, so we just want to close that
out.
Coordinator Thank you. Our next question comes from Chris Winkler.
C. Winkler I had a question regarding the customer base opportunities,
which you had hinted at before. Could you talk a little bit
about whether there's any significant overlap in the
customer base between the two companies?
G. Maier Between GetThere and BTS?
C. Winkler Yes. I'm sorry. Yes.
G. Maier Actually no. For the most part customers make a decision on
one of many choices in the marketplace. Those that have
selected BTS would not have
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PAGE 26
also selected GetThere. So there should be basically
addition of the two would be the sum of the customer lists.
C. Winkler Great. Thank you.
B. Hannigan Gadi, I can see from a supplier perspective, agency
perspective, and corporate customer perspective I can't see
any overlap.
G. Maier Yes.
C. Winkler Great. Thank you.
Coordinator Thank you. Our next question comes from Dan Adler.
D. Adler This question is for Bill. If you could just speak to when
going through the transaction if you had considered building
versus buying and why you chose the purchase route?
B. Hannigan We think speed's real, real important. We think that again
this is a market that's growing very rapidly. When you talk
about the corporate online space it is only 1% of the
market, so again I think in keeping with Sabre tradition we
want to be first in and we want to be biggest. The GetThere
team was doing a terrific job and we just saw a real
opportunity to accelerate our positioning in the market.
J. Jackson Which has the impact of accelerating our revenue growth rate
versus the build model.
B. Hannigan Right. As you would expect, we absolutely ran those numbers
more than once and looked at our opportunities.
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PAGE 27
D. Adler Got you. Then just on the cost saving, switching gears,
when going through your exercises do you have a sense if
perhaps there might be additional opportunities down the
road to just squeeze out some additional inefficiencies out
there or is this basically all that there is to do?
B. Hannigan No. Our work is never done as far as scrubbing our business
and looking for opportunities. I expect as we continue to
evolve, as the market continues to evolve we will be as fast
on our feet as possible.
D. Adler Thanks.
Coordinator Thank you. Our next question comes from Luga Epolido.
L. Epolido Who were the advisors on this transaction?
J. Jackson We were advised by Goldman Sachs.
G. Maier GetThere was advised by DLJ.
L. Epolido Thank you.
Coordinator Thank you. Our next question comes from Andrew Dunlop.
A. Dunlop A quick question. Is the goodwill here being written off as
R&D or are you taking the full charge?
J. Jackson The goodwill on a transaction will be amortized over five
years, so there's not a write off on the goodwill. It's
being amortized over five years. I mean, [clarification -
on the cost-cutting side] we'll take a charge, as Bill
mentioned, of about $20 million.
A. Dunlop ...I'm sorry if that's an old question, I just got on the
line. Thank you.
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PAGE 28
Coordinator Our next question comes from Jim Hoffman.
J. Hoffman Who are the respective legal advisors and what will be the
tender minimum condition?
J. Jackson We're not going to disclose our legal advisors. I don't
think it's particularly relevant to the financial
considerations of the transaction.
J. Hoffman And the tender minimum?
J. Jackson That answer will become evident when we file the documents
next week.
J. Hoffman Last question then. Does the public vote here have any
influence or the public tender on the merger?
J. Jackson Sure. Public and private shareholders are all important to
the success of the tender offer.
J. Hoffman Thank you.
M. Ross Operator, we can take one more call.
Coordinator Thank you. Your last question comes from David Cohen.
D. Cohen Two questions. You're sort of on partners' approval. You
mentioned American Express, United Airlines. I wonder if
you could just comment more generally on if the merger's
conditioned on any approvals by any of the joint venture or
customers' partners in that sort of way.
G. Maier I think I'll give a general answer to that, which is all of
the partners that you referred to, American Express, United,
are represented on our Board of Directors. It was a
unanimous Board vote to go forward and proceed with this
merger. So I think that generally we have, by that
statement,
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PAGE 29
illustrated the fact that through careful consideration,
very deliberate action we all collectively and unanimously
felt that this was the best thing for our shareholders.
D. Cohen Sorry, my question wasn't very clear. Excluding American
Express and United, the non-Board represented partners was
my question. Just wondered if the merger was conditioned on
any of the non-Board represented partners approval?
G. Maier I don't want to get into the details of the specifics about
it to the public at this time.
D. Cohen Thank you.
B. Hannigan Okay, well thank you all for coming. Obviously, we're very
excited about this combination. It will be great to be
working more closely with Gadi and his team after we are
able to close, which hopefully will be in October. And
again, thank you all for coming.
