TUI Revives TUI Travel Merger Plan to Create Tourism Leader

TUI AG (TUI1) and TUI Travel Plc revived merger talks that broke down last year, targeting a deal that would create the world’s largest tourism business.

Under the plan announced today, each share of TUI Travel would be exchanged for 0.399 of a new TUI share. Shares of both companies rose after they said they’re pursuing a nil-premium all-stock combination that would reap savings of least 80 million euros ($109 million) a year in synergies and tax benefits while encouraging growth across a broadened portfolio.

“The proposed transaction is positive and may create value for both companies,” said Jochen Rothenbacher, an analyst at Equinet Bank AG in Frankfurt. “The exchange ratio seems to be somewhat more favorable for shareholders of TUI AG than for those of TUI Travel.”

The deal would remove the biggest obstacle in TUI AG’s corporate structure 1 1/2 years after Friedrich Joussen took over as chief executive officer. Joussen, who restored the company’s ability to pay a dividend after investors came away empty-handed for years, said the two companies are a natural fit because they share common roots and can jointly reward shareholders better than with the fragmented make-up he inherited.

Management Shuffle

TUI, based in Hanover, northern Germany, rose as much as 75 cents, or 6.3 percent, to 12.69 euros in Frankfurt, while TUI Travel, in which TUI owns a 54 percent stake, surged 30.20 pence, or 7.7 percent, to 420.20 pence in London.

The new company would be listed on the London Stock Exchange (LSE), now home to TUI Travel, while its headquarters would be in Germany. Joussen will take sole charge of the combined company after the annual general meeting in February 2016.

Valued at $3.4 billion based on the price of TUI Travel shares that TUI AG doesn’t own, the transaction would be the biggest deal in the wider tourism services sector since the 2006 takeover of reservations specialist Sabre Holdings Corp.

The U.K. business was formed in 2007 when TUI combined its travel unit with First Choice Holidays Plc. TUI itself has undergone one of Germany’s most radical corporate makeovers, having started out as a mining and smelter company.

Mordashov Backing

TUI had sought to combine with TUI Travel before and retreated from the plan at the start of last year, saying at the time that a share-based deal would not be in its shareholders’ interests.

Joussen said today that key conditions since then have changed, including a higher stock price for TUI, better profitability and not least a good working relationship between himself and his counterpart at Crawley, England-based TUI Travel, Peter Long, who will become chairman in 2016.

The stake in TUI Travel (TT/) is by far TUI’s most prized asset, valued at almost 3 billion euros, based on U.K. business’s closing price yesterday, which gave it a total market value of 4.36 billion pounds ($5.9 billion). That compares with a market value for all of TUI AG of about 3.24 billion euros.

Alexey Mordashov, the Russian billionaire who is the largest shareholder in TUI -- which also owns a portfolio of hotels and cruise ships -- backs the merger, the companies said.

The stake in Hapag-Lloyd AG owned by TUI AG would be held as a business for disposal, resulting in the group becoming a pure-play integrated leisure and tourism business. they said.

Deutsche Bank AG and Greenhill & Co. (GHL) advised TUI on the merger, while TUI Travel was advised by Lazard Ltd. (LAZ), Bank of America Merrill Lynch and Barclays Plc. (BARC)

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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