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Go Big

By Aldo Svaldi – Business Journal Staff Reporter

May 17, 1998, 10:00pm MDT Updated May 18, 1998, 12:00am

Professional Travel Corp. is near a $100 million spinoff that will transform it from a subsidiary of U.S. Office Products Co. to a public company primed to roll up travel agencies around the globe.

The new company, named Navigant International Inc., filed a registration statement with the Securities and Exchange Commission May 7.

Englewood will serve as Navigant's headquarters. Ed Adams, founder of Professional Travel, will serve as CEO and chairman of the new group.

With 2,400 employees and $1.38 billion in airline ticket sales last year, Navigant ranks as the country's fifth-largest travel agency group. It has 128 offices spread across the United States, Canada and the United Kingdom.

"It will offer some competition to the big guys. It will offer customers of existing agencies more resources," predicted Kevin Mitchell, president of the Business Travel Coalition.

The spinoff is just one of four that U.S. Office plans. The company has tried to provide everything from coffee to printing to airline tickets to its corporate customers.

But Wall Street hasn't placed a premium on the stock, and management is attempting to gain more value by breaking the company up.

U.S. Office acquired Professional Travel, the state's largest agency, in January 1997 and grafted 10 other regional agencies into it.

Pending shareholder approval at a May 22 meeting, Navigant plans to issue 100 million shares of stock to existing U.S. Office shareholders on about a one-for-one basis. U.S. Office plans to complete its restructuring before the end of the second quarter.

The new stock will trade on the NASDAQ National Market under the symbol FLYR. Salomon Smith Barney and NationsBanc Montgomery Securities LLC are underwriting the offering.

Based on a book value for the company of $98.4 million, Navigant shares would go to investors at 98 cents apiece, according to the registration filing. Typically, a stock trades at a multiple of book value. Any price will also depend on earnings, real or expected.

For the nine months ended Jan. 24, Navigant reported $120 million in revenue and $5.4 million in net income. Extrapolated to a full year, the company would have revenue of about $160 million, making it larger than a Moneygram Payment Systems or Rock Bottom Restaurants Inc.

Navigant reported $137.7 million in assets, including $6 million in cash on Jan. 24. It had liabilities of $37.6 million, including $15.8 million transferred from U.S. Office.

Approximately $86.1 million, or 64.8 percent, of Navigant's total assets are intangible, mostly the goodwill represented in its relationships with its corporate clients.



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"Purchasers of Navigant common stock offered hereby will incur an immediate and substantial dilution in net tangible book value ... from the initial public offering price," the filing warns.

The stock contains other risks. Shareholders in U.S. Office are under no obligation to hold the new stock and a significant amount of trading is expected, according to the filing.

If the stock doesn't perform well, then the company could be limited in making future acquisitions.

The airline industry also could continue to ratchet down agency commissions, cutting into the company's profit margins. Earlier cuts have proven a major driver behind consolidation.

"There is clearly consolidation going on because the airlines have cut back the revenue streams from 10 percent commissions to 8 percent today," Mitchell said.

Navigant managers didn't return phone calls before press time, but the company said in its filing that it plans an "aggressive acquisition program to further consolidate the corporate travel agency industry."

More than 30,000 travel agencies split $70 billion in annual airline ticket sales last year, according to the company. Only seven agencies, giants like American Express Travel Services and Carlson Wagonlit Travel, sell more than a $1 billion a year in tickets.

Mitchell said none of the big players are as active in acquiring as Navigant has been of late.

"They are exploiting some obvious marketplace opportunities. I don't see a downside," Mitchell said.

Part of Navigant's strategy is to maintain local operational control while creating a "mega-agency" to handle technical and administrative needs.

The company is looking for profitable corporate travel agencies run by entrepreneurs willing to stay on and work within a larger group.

Besides the 47-year old Adams, other officers include Robert Griffith, CFO and treasurer; Douglas Knight, COO; and Eugene Over Jr., general counsel.

The company's board will have a heavy Denver influence. Vassilios Sirpolaidis, former president of Mile High Office Supplies, and local dealmaker Ned Minor are directors. Jonathan Ledecky, a founder of U.S. Office Products, also is a director.

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