Amadeus Global Travel Distribution, S.A. Independent Expert’s Report produced by Dresdner Kleinwort Wasserstein 1 April 2005 This document together with the annex letter to the independent expert’s report constitutes, in its English language version, a translation of the “Informe de Experto Independiente” and its annex letter, written in Spanish and dated 1 April 2005, which, in the event of any inconsistency, shall always prevail.
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Amadeus Global Travel Distribution, S.A.
Independent Expert’s Report produced by Dresdner Kleinwort Wasserstein
1 April 2005
This document together with the annex letter to the independent expert’s report constitutes, in its English language version, a translation of the “Informe de Experto Independiente” and its annex letter, written in Spanish and dated 1 April 2005, which, in the event of any inconsistency, shall always prevail.
Table of Contents
Section Page I. Purpose and scope of our work 1 II. Generally accepted valuation methodologies 12 III. Criteria laid down under Royal Decree 1,197/1991 52 IV. Conclusions 62 Appendix I. Profit & Loss forecasts 63
I. Purpose and scope of our work
1
Contents
1. Background
2. Purpose of our work
3. Scope
4. Valuation date
5. Available information
6. General limitations
I. Purpose and scope of our work
2
1. Background
� Amadeus Global Travel Distribution, S.A. (hereafter, “Amadeus” or “the Company” and, together with its subsidiaries “Amadeus Group” or
“the Group”) was established in July 1988, its corporate purpose being as follows:
� Data transfer from and / or through computerised booking systems, including offers quotes, bookings, fares, carrier tickets and/or
similar;
� Provision of any other services relating to the transport and tourism industry;
� Provision of IT and data processing, management and consultancy services relating to information systems;
� Provision of services relating to the supply and distribution of any type of product by computerised means, and the manufacture,
sale and distribution of software, hardware and all kinds of other equipment.
� For these purposes, the corporate purpose will also involve the establishment of Spanish or foreign subsidiaries, as well as setting these
subsidiaries’ goals, strategies and priorities; the coordination and definition of their financial targets; the control of their financial behaviour
and performance; and, in general, the management and control thereof.
� The capital stock of Amadeus consists of preferred shares of one cent of a euro (€0.01) of nominal value each, which make up Class A,
and ordinary shares of ten cents of a euro (€0.10) of nominal value each, which make up Class B. With regard to the basic shareholders’
rights:
� Each share grants its owner the title of stockholder, granting him/her the rights recognised by Corporate Law and those stated in
Amadeus’ by-laws. Each Class A share will provide the right to one (1) vote, while each Class B share will provide the right to ten
(10) votes.
I. Purpose and scope of our work
3
� With regard to economic rights, the Class A shares grant their holders greater economic rights than the Class B shares, as follows:
a) Regarding the right to share in Amadeus’ profits, the holders of Class B shares are eligible to receive a dividend equal to the
lesser of the following amounts: (i) 1% of the total dividends that the Company agrees to distribute, or (ii) 1% of the nominal
value of the Class B shares. The remainder of any dividend that Amadeus distributes will be received by the holders of Class A
shares.
b) In the event of Amadeus’ liquidation, the Amadeus’ net assets will be distributed in the following manner: (i) the nominal value of
the Class A shares will be reimbursed first; (ii) in the event that there is a remaining value, the nominal value of the Class B
shares will be reimbursed. Once the nominal value of both classes of shares has been reimbursed, (iii) the remaining portion of
value will be distributed among the holders of Class A shares.
� There are no by-law restrictions or restrictions of any other nature against the free transferability of Class A shares; therefore they are freely
transferable in accordance with the provisions of Corporate Law, the Securities Law and other regulations in force.
� There are also no by-law restrictions on the free transferability of Class B shares, although there are private agreements between the
shareholders holding these Class B shares, which limit and regulate their transferability.
� Currently, three airlines (hereafter, “reference shareholders”) hold significant stakes in Amadeus’ capital:
� Air France, S.A. (23.36% of Class A shares and 50.04% of Class B shares, representing 43.21% of Amadeus’ share capital and
voting rights);
� Iberia Líneas Aéreas de España, S.A. (18.28% of Class A shares and 39.14% of Class B shares, representing 33.80% of Amadeus’
share capital and voting rights);
I. Purpose and scope of our work
4
� Lufthansa Commercial Holding GmbH (5.05% of Class A shares and 10.82% of Class B shares, representing 9.34% of Amadeus’
share capital and voting rights).
� In the course of 2004, several financial investors held discussions with the reference shareholders with the aim of carrying out a potential
restructuring of the ownership of Amadeus, which would potentially lead to a Public Tender Offer for 100% of Amadeus’ share capital, by
one or several financial investors, possibly in conjunction with the reference shareholders, with the aim of subsequently delisting of
Amadeus.
� These discussions resulted in a formal process whereby the reference shareholders endeavoured to identify an investor or group of
financial investors as partners, in order to make a Public Tender Offer for Amadeus’ Class A shares.
� On 17 August 2004, the reference shareholders and Amadeus Group itself confirmed to the Spanish Securities and Exchange
Commission (hereafter the “CNMV”) that discussions with financial investors were taking place by publishing a significant event filing
(in Spanish “Hecho Relevante”) on that date;
� On 25 November 2004, it was announced that BC Partners Limited, the Carlyle Group (at the time also partnered with CVC Capital
Partners), Cinven Limited and Citicorp Venture Capital Limited were chosen to take part in a second round in the process;
� On 12 January 2005, Amadeus Group announced that it had been informed by the reference shareholders that BC Partners and
Cinven had submitted a proposal to launch, jointly with the reference shareholders, through an newly formed company, a Public
Tender Offer for the Class A shares at a price of 7.35 euros per share, with the aim of delisting Amadeus as soon as possible.
� As outlined in the “Hecho Relevante” filed by the Group on 12 January 2005, the consortium formed by BC Partners, Cinven and the
reference shareholders (hereafter “the Offeror”) aims to delist Amadeus thereafter (while this should not influence the decision of the CNMV
and provided that the Offer is successful).
I. Purpose and scope of our work
5
2. Purpose of our work
� Within the context of the potential transaction described above, the Board of Directors of Amadeus has asked Dresdner Kleinwort
Wasserstein (“DrKW”) to prepare an independent expert’s valuation report on the value of 100% of Amadeus’ Class A shares that includes
the assessment of the minimum criteria laid down under Section 7 of Royal Decree 1,197/1991, regarding the delisting of shares. This
regulation establishes that the price offered may be no less than the price derived by taking into account jointly and with substantiation of
their relative significance, at least the following criteria: theoretical book value, liquidation value, average share price over the previous six
months and price offered in any Public Tender Offers launched to acquire Amadeus in the previous year.
� In this context, the purpose of our work has been to determine the value of the Amadeus Group by applying generally accepted valuation
methodologies including Discounted Cash Flow (“DCF”), analysis of comparable listed companies and comparable transactions, as well as
also considering the criteria laid down under the aforementioned Royal Decree.
� In this respect, it should be noted that any valuation involves not only a set of objective parameters but also a number of more subjective
judgements. The valuation range derived from such an analysis is, consequently, only an estimate to be used as a reference point for the
various interested parties potentially involved in the proposed transaction.
3. Scope
� In order to determine the value of the Amadeus Group, DrKW has considered the Group to be made up of two separate entities, Amadeus
(excluding Opodo) and Opodo, to reflect the different business models and businesses’ relative maturities, as follows:
� Amadeus, including the recently acquired OPTIMS, Amadeus France and Sistemas Automatizados para Agencias de Viaje, S.A.
("SAVIA"), operating in the following business areas:
� Global Distribution Services (hereafter “GDS”), including indirect air distribution, leisure distribution, TSP distribution and
direct airline distribution
I. Purpose and scope of our work
6
� Technology solutions for airlines, such as Altea Sell, Altea Plan, Altea Fly and other technology services
� Other products and services, such as e-Travel, API, TOPS products, V.com, etc.
� Pan-European travel portal Opodo, in which the Group currently has a 74.02% holding following its recent increase in holding from
55.36% (see section II.2 for further details).
� DrKW has applied the following valuation methodologies for each Amadeus (excluding Opodo) and Opodo:
� Discounted Cash Flow analysis
� Valuation based on comparable listed companies
� Valuation based on comparable transactions
� Subsequently, DrKW has derived an implied valuation range for the Amadeus Group resulting from the sum of the separate valuations of
Amadeus and Opodo.
� Our work has essentially been carried out on the basis of published information, studies, analyses and reports regarding the GDS market
and the Amadeus Group, which we have been able to obtain from public sources, as well as additional financial information on the Group’s
various businesses as supplied by the Group’s management.
� Regarding information on the Group supplied to us or that we have obtained from public sources, we have not conducted independent
verification of that information, and have assumed the accuracy of the information supplied. We have obtained a letter from Amadeus
Group management whereby they confirm to us that, to the best of their knowledge, the Group has supplied us with the significant
information and that we have been informed of all significant facts or circumstances, known to the Group, that might materially affect
production and results of the Independent Expert’s Report. On this basis we believe we have received the information we believe is
required to produce the report.
I. Purpose and scope of our work
7
� As part of our scope of work, we have developed financial models to forecast the future business development of Amadeus and Opodo
based on the Group’s long-term plan included more current information supplied by Group management. These forecasts and the
assumptions they are based upon have been provided by or agreed with the Group management. Based on the information supplied by
Amadeus Group management and on the work we have done as outlined in this section, DrKW believes that the financial projections
present a reasonable picture in terms of future evolution of the company.
� Whether these financial projections are met is dependent on the continuing validity of the assumptions upon which they are based.
Forecasts, projections and estimates we have considered to produce this report are obviously subject to uncertainty, changes in
circumstances and unforeseen events that might cause the Group’s future development to be materially different from the situation they
present.
� This report is intended to be considered as an independent valuation that has been undertaken for the benefit of the Board of Directors of
Amadeus solely for the aforementioned purpose. This report grants no rights and does not constitute any advice or recommendation to
Amadeus, its Board of Directors, its shareholders, the Offeror, the Offeror’s shareholders or any other third parties regarding the position
they should take regarding the Offer or regarding the advisability of taking part in, or encouraging others to take part in, the Offer or in any
subsequent bid or transaction that could ensue.
4. Valuation date
� The reference date for the purposes of this valuation exercise is 1 January 2005. The latest unaudited financial statements supplied by
Amadeus Group management are for the period to 31 December 2004.
� According to Amadeus Group management, there have been no major events or occurrences after the date of valuation liable to have a
significant impact on our valuation and which have not been considered for the purposes of this report.
I. Purpose and scope of our work
8
5. Available information and applied procedures.
� The main assumptions used in preparing the financial forecasts of the various businesses have been confirmed with the Amadeus Group
management team, to whom DrKW has had access in a number of meetings in the context of our assignment.
� Basic public documentation used for valuation is as follows:
� Unaudited Group annual accounts for financial year 2004; audit report signature expected in the near future;
� Consolidated accounts for Amadeus and its subsidiaries and existing audited reports for financial years 2002 and 2003;
� Unaudited quarterly results for Q1, Q2 and Q3 2004;
� Report from International Air Transport Association (hereafter “IATA”), which includes a forecast of the number of air travellers for
the period 2003-2007;
� Other public information deemed relevant for the purposes of valuation regarding various business aspects, such as analysts’
reports, market studies, etc.
� In addition to public information, materials used for the valuation include the following documents made available to DrKW by Amadeus
Group:
� Long-term Amadeus Group business plan (2005-2007) approved by the Board;
� Amadeus Group presentation prepared by Group management within the context of the ownership restructuring process, which,
among other documents, includes a business plan for airline IT services (2005-2012);
� Vendor Due Diligence report produced by PriceWaterhouseCoopers within the context of the ownership restructuring process
("Vendor Due Diligence Report");
I. Purpose and scope of our work
9
� Reports containing information supplied by the Group to potential investors within the due diligence process;
� Group’s net adjusted financial debt as of 31 December 2004;
� Opodo’s unaudited financial statements as of 31 December 2004;
� Updated Opodo business plan produced by Amadeus Group (2004-2008);
� Commissions on TSP bookings for 2004-2007 period;
� Detailed report on SAVIA’s and Amadeus France’s costs for 2004-2008;
� Details of number of direct bookings (ATO/CTO) annually offset as a result of migration to Airline IT system for the period 2006-
2012;
� Current details of certain of the Group’s financial and operating data for 2004;
� Other information supplied by Amadeus Group.
� Financial projections are based on Amadeus Group estimated financial results derived from the Group’s long-term plan (2005-2007),
updated Opodo business plan (2004-2008), business plan for airline IT services (2005-2012) and additional more current information
supplied by the Company. In order to complete financial projections up to 2014, revenue and cost assumptions have either been supplied
by Amadeus Group or drawn up by DrKW, reviewed and approved by Group management. It should be noted that projections have been
adjusted to show the “pro-forma” impact of Amadeus France and SAVIA as if they had been acquired on 1 January 2005. Equally,
projections have been adjusted to final results for 2004. These projections and the assumptions supporting them have been supplied or
approved by Amadeus Group management.
I. Purpose and scope of our work
10
� Financial projections of the airline IT services business are based on the relevant business plan provided by Amadeus Group for the 2005-
2012 period.
� The reference date for the Discounted Cash Flow valuation is 1 January 2005. For the purposes of our work, we consider a “pro forma” net
financial debt as of 31 December 2004, adjusting for increased long-term debt derived from the acquisitions of SAVIA, Karavel and Quest,
as outlined in section II.3. These figures have been supplied by the Group.
� Financial projections for Opodo are based on an updated industrial plan supplied by the Group, and on extensive discussions conducted
with the Group’s management team. It should be noted that the Opodo business plan was updated as a result of the delay in the
acquisitions of Karavel and Quest, originally expected to be finalised before the end of 2004, but completed in 2005.
� The aforementioned business plan is based on an inorganic growth strategy including the acquisition of certain as yet unidentified
companies. For the purposes of our work, we have developed revised financial projections that exclude the impact of any as yet
unidentified acquisitions, due to their high uncertainty, whereby the only acquisitions considered are the two mentioned above (Karavel and
Quest).
I. Purpose and scope of our work
11
6. General limitations
� In producing our work, we have relied on public financial information and Group information supplied by Amadeus Group management.
� The scope of our work does not include any review and evaluation of the tax, legal, employment, accounting, environmental, operating or
other circumstances of the Group. Therefore, the risks, if any, stemming from such circumstances have not been taken into account in our
valuation.
� Our value estimates are based on generally accepted valuation methodologies. Though we believe our estimates are reasonable and
defensible on the basis of available information, we note that the valuation of businesses is not an exact science, but rather an exercise
based on experience and the use of assumptions, which involve a certain degree of subjectivity. Under these circumstances, we cannot
give any assurance that third parties will necessarily agree with our conclusions.
� This report has been prepared solely in relation to the purpose specified in Section I. As such, it may not be divulged or distributed without
the prior consent of DrKW, for any other purposes, to persons other than to the Directors and Managers of the Amadeus Group or their
advisors. We accept no liability to third parties for the use of this report for any other purpose than the one specified above. The only
exception to the foregoing is that this document may be supplied by the addressee to the CNMV for inclusion in the Prospectus of the
Public Tender Offer if the CNMV so requires. Additionally, the report may be used as an appendix to the investment agreement to be
signed by BC Partners Limited, Cinven Limited, the reference shareholders and the Group.
� In this respect, the projections used in our valuation have been prepared solely in relation to the purpose specified in Section I.
Consequently, we accept no liability to third parties for use of such projections for purposes other than the one specified above.
� The remaining sections in this report include a description of the basic assumptions used to arrive at the financial projections employed, as
well as the valuation methods and criteria used. This report does not include a comprehensive description of the business of the various
companies, as that has not been deemed necessary for the purpose of this piece of work.
II. Generally accepted valuation methodologies
12
Contents
1. Amadeus (excluding Opodo) valuation
1.1. Discounted Cash Flow
1.2. Comparable quoted companies
1.3. Comparable transactions
1.4. Valuation conclusions on Amadeus (excluding Opodo)
2. Opodo valuation
2.1. Discounted Cash Flow
2.2. Comparable quoted companies
2.3. Comparable transactions
2.4. Valuation conclusions on Opodo
3. Summary of valuation of Amadeus Group’s Implied Enterprise Value
4. Amadeus’ Class A share value
II. Generally accepted valuation methodologies
13
� As noted in Section I.3, DrKW has performed a valuation of Amadeus Group considering Amadeus (excluding Opodo) and Opodo where
the Company has a 74.02% holding, as two independent entities. We believe that the differing business characteristics of Amadeus
(excluding Opodo) and Opodo, and the different risk and maturity profiles of their respective businesses call for the valuation of the Group
in parts. To this end we have applied generally accepted valuation methodologies including Discounted Cash Flows analysis and the
application of comparable quoted companies and comparable transaction multiples to value each of them.
1. Amadeus (excluding Opodo) valuation
1.1. Discounted Cash Flow
� The Discounted Cash Flow (DCF) methodology uses the premise that the value of a business represents the value of the cash flows it will
generate in future years. As such it incorporates more completely all factors affecting the value of the business by valuing the company as if
it were an ongoing investment project. This argument becomes even more important in the specific case of Amadeus, as a result of the
Amadeus’ rapidly evolving and dynamic business model. The DCF methodology is therefore the valuation method that best reflects the
potential of a business to generate cash in the future.
� Application of the DCF methodology for valuation of Amadeus entailed the following stages:
� Estimate of the net cash flows Amadeus is expected to generate from 1 January 2005 to 31 December 2014 based on financial
projections. This estimate has been produced from financial projections supplied or approved by Amadeus Group management, as
outlined in section I (Purpose and scope of our work).
� Calculation of the discount rate, which is Amadeus’ Weighted Average Cost of Capital (WACC). This discount rate takes into account
both the cost of equity and the cost of debt, and is calculated by weighting them according to an estimate of Amadeus’ target capital
structure.
II. Generally accepted valuation methodologies
14
� Application of the discount rate to the Free Cash Flows of the business through 2014 to arrive at the Net Present Value (“NPV”) of those
cash flows.
� Estimation of the terminal value of Amadeus, calculated as the NPV at the date of valuation of the Free Cash Flows that Amadeus will
generate from 2015 onwards in perpetuity. This has been calculated on the basis of the Free Cash Flow in 2014 to which a perpetuity
growth rate of between 2.00% and 3.00% has been applied.
Terminal value calculation
Terminal value = NPV [(FCF2014 x (1+g) ) / (discount rate - g)]
Note: NPV = net present value at valuation date FCF2014 = projected Free Cash Flow at 2014 g = perpetuity growth rate
Estimate of Discount Rate
� The discount rate applied to calculate current values at 1 January 2005 has been determined based on Weighted Average Cost of Capital
(WACC), whereby we have considered a financial structure with debt over total equity of 11.47%, equivalent to the current average financial
structure of the GDS sector, for which we have used as reference the current average financial structure of Amadeus (5.73%) and Sabre
(17.21%), which we believe is the sole comparable listed company (see section II.1.2 for further details on comparable companies).
II. Generally accepted valuation methodologies
15
� The WACC used in the discounted cash flow analysis has been calculated as follows:
WACC calculation
WACC = Kd x (1-Tc) x (D/(D+E)) + Ke x (E/(D+E))
Note: Kd = Estimated pre-tax cost of debt Tc = Company tax rate D = Debt E = Equity Ke = Cost of equity
� The cost of debt before tax has been estimated at 4.19%, which corresponds to the risk free rate, assuming as such the 10 year
Spanish Sovereign Bond yield, estimated at 3.74% (source: Datastream, monthly average from 1 March 2005 to 31 March 2005), plus a
spread. Regarding the spread over the risk free rate which is applicable to Amadeus, in light of Amadeus’ strong balance sheet and
cash generation capabilities, DrKW has assessed recent corporate debt issues of between 8 and 10 years to maturity by A or BBB+
rated Spanish issuers. This provides an estimated spread over risk free rate for Amadeus of 45 basis points.
� The marginal tax rate has been estimated at 36% for both the forecast period and the calculation of the terminal value implying a 1%
spread in relation to the prevailing corporation tax rate in Spain (35%) due to the different tax rates applicable across Amadeus’
international markets.
II. Generally accepted valuation methodologies
16
� The cost of equity has been estimated based on the Capital Asset Pricing Model (“CAPM”). This model calculates the cost of equity of a
company as the sum of the risk free rate and a company specific equity risk premium, that latter of which represents the risk of the
company in question compared to the market risk premium:
(2 ) Market data as of 31st March 2005 (source: Datastream).
adjustments (19.5 and 25.5 million euros in sales and EBITDA in 2004, respectively) and are based on information supplied by Group management. 2005 and 2006 financials are derived from financial projections.
Note: (1 ) Amadeus' financials do not include Opodo's. 2004 financials are actual proforma financials that incorporate the Savia and Amadeus France consolidation
� We have selected the EV/EBITDA and EV/EBITA multiples as the most relevant to determine a valuation range for Amadeus, in order to
reflect Amadeus’ higher profitability compared to Sabre.
� Additionally we applied 2004 and 2005 multiples for their greater certainty and significance compared to 2006 multiples.
� Application of these multiples to Amadeus’ financials for years 2004 and 2005 derives an implied Enterprise Value range for Amadeus
of 3,676 to 4,221 million euros.
� We have considered the comparable quoted company method merely for reference purposes bearing in mind the significant restrictions
essentially derived from the small number of comparable companies (in this case only one) and their limited comparability.
II. Generally accepted valuation methodologies
30
1.3. Comparable transactions
� Valuations using comparable transactions involve applying multiples derived from completed transactions for which there is adequate
information.
� Through the implicit equity value and enterprise value paid for the acquired company in each case, it is possible to calculate multiples such
as EV/Sales, EV/EBITDA and EV/EBIT, which when applied to financials of the company being valued, result in certain implied valuation
ranges.
� Subject to several factors, including among others, similarity of the company used as benchmark, date of acquisition or factors such as
premium paid to carry out any given transaction, the resulting multiples can be used to support other valuation methodologies and estimate
whether the implied valuation is in line with the price paid in similar precedent transactions.
� Because the majority of Amadeus’ revenues are derived from the business of providing distribution services to the travel industry, we
believe that, given the particular characteristics of this industry, only acquisitions of GDS companies can be deemed relevant for the
purposes of carrying out this analysis.
� Consequently, we have selected the following transactions:
� Worldspan’s acquisition by TTPC in March 2003.
� Galileo’s acquisition by Cendant in October 2001. It should be noted that this transaction is based on the closing price of Cendant
shares on the date of completion of the transaction, which took place after the 9/11 terrorist attacks in the United States.
� Apollo’s acquisition by Galileo in 1998, the last transaction previous to the ones mentioned above in the GDS industry, has not been
considered in our analysis because the transaction occurred a long time ago.
II. Generally accepted valuation methodologies
31
� The following table shows the net sales, EBITDA and EBIT multiples implied by the aforementioned comparable transactions and the
estimated values for Amadeus obtained by applying the average of these multiples to headline figures of Amadeus:
the SAVIA and Amadeus France consolidation adjustments (19.5 and 25.5 million euro in sales and EBITDA in 2004, respectively) and are based on information supplied by Group management.
(2 ) Source: Datastream, company data, Factiva.
Notes: (1 ) Amadeus' financials do not include Opodo's. 2004 financials are actual pro-forma financials that incorporate
� We have considered EV/EBITDA and EV/EBIT as the more relevant multiples as they are more consistent than EV/Sales.
� By applying the multiples to Amadeus’ 2004 financials, we derive an implied Enterprise Value range of 2,564 to 2,772 million euros for
Amadeus.
� For the purposes of our work, we have considered the comparable transaction method merely for reference purposes bearing in mind
the significant limitations of this method due to the different financial and competitive situations of both Galileo and Worldspan in
comparison with Amadeus and the limited comparability of the acquisition of Galileo because it was so close to the 9/11 terrorist attacks
in the US.
II. Generally accepted valuation methodologies
32
1.4. Valuation conclusions on Amadeus (excluding Opodo)
� The following table summarises the different implied valuation ranges for Amadeus (excluding Opodo) calculated through the application of
Maximum remaining contribution 192.4 140.9 333.3 (1) 283.3 85.00%
Source: Amadeus
Note (1) Opodo's value in terms of dilution post-contribution assumes that the Group makes an additional contribution for the maximum outstanding amount (140.9 million euros). We have not considered this in our valuation due to the uncertainty of as yet unidentified Opodo acquisitions, and therefore the need for additional capital contributions.
� It should be noted that Opodo financials have only contributed to the Group’s results in the second half of 2004.
II. Generally accepted valuation methodologies
35
2.1. Discounted cash flow
The discounted cash flow methodology applied for the valuation of Opodo includes the same phases, procedures and calculations as those
described in Section II.1.1 of this report.
Estimate of Free Cash Flows and the terminal value
� As in the case of the Amadeus valuation, the estimate of Opodo’s Free Cash Flows for the period from 1 January 2005 to 31 December
2014 has been performed on the basis of financial projections provided by or agreed with the Amadeus Group management, as described
below in the section on Financial Projections.
� Likewise, the terminal value of the Opodo has been calculated based upon a normalised cash flow figure, which is based on Free Cash
Flow in 2014 and assuming a perpetuity growth rate of between 2.5% and 3.5%, using the formula outlined in section II.1.1. We consider it
is appropriate to apply a higher perpetuity growth rate for Opodo than the rate used for the valuation of Amadeus excluding Opodo due to
Opodo’s higher growth expectations.
Estimate of the discount rate
� In the same manner as with the valuation of Amadeus described in Section II.1.1. of this report, the discount rate applied for calculating the
present values at 1 January 2005 has been determined according to Opodo’s estimated weighted average cost of capital (WACC). In the
case of Opodo, Group management has considered a different capital structure not involving debt financing, as its business is still in a state
of relative immaturity, offering a high growth perspective but also at a high risk, and the Group management therefore expects Opodo to be
completely financed with equity. Note that Amadeus has lent Opodo 52.8 million euros, which Group management plans to settle by
Opodo’s future cash flow generation. The value of the tax shield this loan will provide is not material in the context of the valuation of
Opodo. Group management considers that funding needs arising from Opodo’s losses until break-even will be funded by means of
successive capital increases subscribed by the Group as outlined above. DrKW considers that such funding of Opodo’s needs will have no
net impact on the Group’s valuation.
II. Generally accepted valuation methodologies
36
� The attached table summarises the main assumptions used to calculate Opodo’s cost of equity and, given the defined target financial
structure, the WACC used in discounting the Free Cash Flows.
WACC assumptions
Beta coefficient, unleveraged, BU 2.03
Debt to total capital 0.0%
Equity to total capital 100.0%
Beta coefficient, leveraged, BL 2.03
Risk free rate, Rf 4.80%
Market premium 4.50%
Cost of equity, Ke 13.96%
WACC 13.96%
� Given that Opodo is a UK-based company, we have applied the risk-free rate for the United Kingdom, estimated at 4.80% and based upon
the yield on the 10-year Sovereign Bond of the Government of the United Kingdom (source: Datastream, monthly average from 1 March
2005 to 31 December 2005).
� In the same manner, a risk premium of 4.50% has been applied based on the current DrKW Research estimates for the UK market.
II. Generally accepted valuation methodologies
37
� The leveraged β has been calculated from the average of coefficients obtained from Barra and Bloomberg2. Given the assumed debt free
capital structure of Opodo, the average unlevered β coefficient is equal to the average levered β coefficient (i.e. 2.03). We have used an
average of the Barra and Bloomberg β coefficients. This has been calculated based upon the β coefficients of online travel service
companies comparable to Opodo, namely IAC/InterActiveCorp, lastminute.com and Priceline.com. We believe the leveraged β coefficient of
2.03 adequately reflects the volatility of Opodo in terms of calculating the discount rate.
� As a result of the assumptions described above and the detailed workings described in Section II.1.1. of this report, we have estimated a
WACC of 13.96% for Opodo, which as a whole we believe is suitable for a company of Opodo's profile. We feel it is advisable to maintain
the same discount rate throughout the projection period and in the terminal value calculation bearing in mind the significant uncertainty on
Opodo’s future viability. In this context we should point out that the low commission level of the Opodo business, along with heavy
investments in technology and high marketing costs on line selling requires, have prevented Opodo from being financially profitable up to
the date of writing this report (Opodo showed gross operating losses of 89, 66 and 50 million euros in 2002, 2003 and 2004, respectively).
Group management believe, given its volume-based business model, Opodo will only become profitable if it grows to sufficient scale,
whereby its survival will be subject to its positioning among the top three online travel companies, as is the case in the US market, where
three companies (Expedia, Travelocity and Orbitz) control almost 70% of the market. Opodo's current lack of a leading market position
means that its future survival cannot be assumed.
Financial projections
� The financial projections for Opodo are based upon an Updated Industrial Plan of Opodo for the 2004-2008 period, provided by Amadeus
Group management. In order to complete financial projections up to 2014, revenue and cost assumptions have been drawn up by DrKW,
and reviewed and approved by Group management. This Industrial Plan differs from the one included in Opodo’s long-term plan, as a result
of the delay in the acquisitions of Karavel and Quest, originally expected to be finalised before the end of 2004, but finally completed in
2005.
II. Generally accepted valuation methodologies
38
� In the same manner, the Updated Industrial Plan for Opodo includes the effect of a number of as yet unidentified acquisitions, resulting in
significant inorganic growth for Opodo.
� For the purposes of our analysis, we have developed some adjusted projections that remove the effect of the as yet unidentified
acquisitions, based upon the information provided by Amadeus, with the exception of the acquisitions already identified by Opodo
(Karavel and Quest).
� The income and EBITDA projections of Opodo used for the 2005-2014 period are summarised in the following table:
Financial forecasts for Opodo
Million euros
TA air online booking fees (€m) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Treasury stock and related financial instruments (126,899) (109,499)
Total Book Value 757,713 931,724
Nominal value of the "B" shares (1)
21,998 17,144
"A" shares total book value 735,715 914,580
Number of "A" shares excluding treasury stock(2)
574,497,157 570,894,330
"A" shares book value per share (euros) 1.28 1.60
(1) Assuming that book value of "B" shares corresponds to the nominal value stated on section I.
(2) Number of shares excluding treasury stock (15,502,843 shares of treasury stock as of 31/12/2003; 19,105,670 shares of treasury stock
as of 31/12/2004).
Note: Calculations under IFRS in consistency with Group's consolidated annual accounts as of 31/12/2004. Results do not materially differ with respect to those applying Spanish Generally Accepted Accounting Principles (1.69 euros of theoretical book value per "A" share).
III. Criteria laid down under Royal Decree 1,197/1991
55
� The difference in Amadeus’ shareholders funds between 31 December 2003 (audited) and 31 December 2004 (unaudited) is mainly due to:
� The inclusion of profit after taxes for 2004 attributed to Amadeus;
� The consolidation of Opodo from 1 July 2004; and
� The redemption of 48,535,400 Class B shares with a nominal value of 4,853,940 euros following the partial sale of Deutsche Lufthansa
AG’s holding of Amadeus A shares.
III. Criteria laid down under Royal Decree 1,197/1991
56
2. Liquidation value
� A company’s liquidation value estimates its value in the event of its winding up the cessation of trading. It is a static approach which only
takes account of the Amadeus’ assets and liabilities at the time of valuation and not the profits they may generate in future. It does not take
into account the principle of going concern.
� The process is essentially based on deriving net worth after realising all assets and settling all liabilities of Amadeus, bearing in mind latent
capital gains / losses, as well as any contingent liabilities. It should be noted that in practice the price secured from selling off some assets
might be lower than their recorded book value. This would essentially depend on what assets are considered and how rapidly the sale
needs to be completed.
� Given the nature of Amadeus’ most significant assets, we believe that the Amadeus’ liquidation value will under no circumstances be higher
than the one derived from a valuation based on a going concern basis.
� These conclusions are based upon the following considerations:
� The activities of the Amadeus Group rely on the human capital of its employees and the intellectual property that these employees
develop. We believe it’s difficult to realise the full value of such intangible asset through the liquidation of the Company. Furthermore,
the majority of the assets that are owned by the Amadeus, such as data processing equipment and software applications, are assets
inherent to the different operations and participate directly in the generation of returns. We believe that the proceeds from the sale of
these assets would result in the recovery of a value equal to or lower than the net book value of the assets; in any event less than the
value of the returns generated by these assets.
� When calculating liquidation value we would also need to consider any associated costs: redundancy costs, compensation, legal costs,
etc. resulting in an even lower value.
III. Criteria laid down under Royal Decree 1,197/1991
57
� Consequently, we do not believe it necessary to establish the Amadeus’ liquidation value as we understand it does not provide a guide to
Amadeus’ underlying value and, in any event, the value arrived at by other methods, in particular the DCF analysis, will be significantly
higher than the value arrived at using this methodology.
III. Criteria laid down under Royal Decree 1,197/1991
58
3. Average share price in the last six months
� Amadeus’ Class A shares are listed on the Madrid and Barcelona stock exchanges and traded through the Sistema de Interconexión
Bursátil and are listed on the Nuevo Mercado. Class A shares are also listed on the Paris and Frankfurt stock exchanges. Currently,
approximately 53.3% of Amadeus’ Class A shares are traded on these stock markets, while the remaining 46.7% is held by the reference
shareholders.
� In general terms, the trading price of a stock on an exchange reflects the price at which market participants buy and sell the stock and,
therefore, serves as a reference value, provided that the trading price is determined based on a meaningful trading volume and with
sufficient liquidity.
� We have considered the average trading price for the six month period preceding the date of publication of the “Hecho Relevante”
submitted to the CNMV on 17 August 2004 by the Group, which provided notice of the interest shown by certain financial investors in
undertaking a reorganisation of the company’s shareholder structure, in view of the significant increase in price of Class A shares from the
publication of the “Hecho Relevante”, reflecting Public Tender Offer related price speculation. For these purposes, simple mean price for
period 13 February 2004 to 13 August 2004 has been estimated, arriving at 4.99 euros per share.
III. Criteria laid down under Royal Decree 1,197/1991
59
Amadeus' share price from 13/02/04 to 13/08/04 (euros)