Flight Centre ends planned PEP joint venture

Australian travel firm Flight Centre Ltd said it has scrapped a planned joint venture with Pacific Equity Partners (PEP) after the company's founder shareholders withdrew their support, knocking its shares down over 8 per cent.

It is the second time a PEP-backed restructure of Flight Centre has been scuttled after an earlier proposal was killed off by institutional shareholders in February.

Flight Centre blamed cost and tax considerations for the demise of the latest proposal, which included a joint venture with PEP and a return of capital to shareholders.

"While the creation of a leveraged joint venture had the potential to deliver significant benefits to Flight Centre and its shareholders, it was also a highly complex and costly transaction and the value proposition," chairman Bruce Brown said in a statement today.

"The value proposition has become considerably less attractive for shareholders as a clearer picture of the costs of the transaction has emerged."

Flight Centre's founder shareholders, who together control more than 50 per cent of the shares, had said they no longer supported the deal.

An independent expert's report had also concluded that the deal was "neither fair nor reasonable" and had valued Flight Centre at up to $A2.1 billion ($NZ2.4 billion), compared with its current market value of $A1.65 billion.

Flight Centre's shares fell 8.5 per cent in early trade to $A17.64.

Under the proposed deal, Flight Centre's operational assets would have been transferred to a joint venture owned 30 per cent by Pacific Equity Partners.

Flight Centre said it would have received about $A1.1 billion in cash from new debt facilities and PEP's payment, much of which would have been returned to shareholders in cash and through an off-market buyback.

The deal reflected a trend for joint venture deals with private equity as they allow buyout firms to share the risk and retain expertise in a particular sector.

Flight Centre is due to release its full-year results on August 23.