Tui and Tui Travel merger agreement announced

A Tui and Tui Travel merger agreement has been announced by the two companies. German based Tui, one of the world’s biggest tour operators, already has a 54.5% stake in its UK subsidiary, Tui Travel. They said that the combined companies would save 45m euros ($61m) in costs annually.

On completion of the merger, the combined entity will have a market value of approximately €5.8 billion ($9.7 billion).

On Friday, share prices of Tui AG rose 3.5% at the Frankfurter Wertpapierbörse (Frankfurt Stock Exchange), while at the London Stock Exchange those of Tui Travel PLC were 4% up.

In a joint statement, Tui and Tui Travel wrote:

“The Independent Directors of TUI Travel and the Executive Board (Vorstand) of TUI AG are pleased to announce that they have reached an agreement in principle on the key terms of a possible all-share ni-premium merger of TUI Travel and TUI AG.”

“The Merger, if consummated, is anticipated to deliver a number of strategic and financial benefits for both the TUI Travel sharholders and TUI AG shareholders.”

Key Terms

  • TUI Travel stockholders will receive 0.399 new TUI AG shares per TUI Travel share they own.
  • The combined company will be domiciled in Germany, and will have a premium listing on the London Stock Exchange, with the aim of becoming listed in the FTSE UK Index Series, including the FTSE 100, as well as a quotation on the Frankfurt Stock Exchange.
  • “TUI Travel and TUI AG “expect that any dividends paid for the 2013/14 financial year would ensure equivalent payment to TUI AG and TUI Travel shareholders, taking into account the exchange ratio and would be in line with the current TUI Travel dividend policy.”
  • Following the merger, the Group plans to review its future dividend policy.

TUI AG’s largest shareholder, Russian billionaire Mr. Alexey Mordashov, has indicated that he backs the merger of the two companies.

Mr. Mordashov said:

“I am pleased with the recent business development of both companies. The combination will serve to improve the tourism business model and help drive future business growth for the benefit of both shareholder groups.”

Merger expected for years

Tourism experts have been talking about a possible merger of the two companies for years. TUI Travel was formed in 2007 when TUI AG’s air carrier and tour operator division merged with First Choice Holidays PLC, a UK tour operator.

Peter Long, TUI Travel’s chief executive, said:

“There has always been a compelling logic to bringing our two businesses together. We’ve got to know our major shareholder TUI AG very well.”

The merged company will initially have two CEOs – Peter Long and Friedrich Joussen. After February 2014, Mr. Long will become Chairman of the Supervisory Board and Mr. Joussen the company’s sole CEO.

Tui and Tui Travel merger agreement

The merged entity would be the world’s largest travel company.

The two companies got together to talk about a merger at the beginning of this year. However, the talks fell through because shareholders of Tui Travel were not happy with a nil-premium merger.

The Financial Times quotes Morgan Stanley analyst, Jamie Rollo, who said there might be a £1 billion ($1.7 billion) return for shareholders from the sale of non-core parts of the company, and Tui AG’s £320 million ($545.1 million) transfer to Tui Travel stockholders because its share price is considerably undervalued.

Mr. Rollo wonders whether the merger is in the best interests of Tui Travel shareholders. The German company is a “weaker business that would be relying heavily on the UK-based operator,” he said.

Tui Travel’s money-making online accommodation and specialist activity are going to be sold off, which does not make sense, Mr. Rollo added. “This appears to us to be primarily a financially motivated deal,” he commented.