TUI AG retreated from a plan to combine with TUI Travel Plc, in which it owns a majority stake, succumbing to investor pressure to drop a share-based deal only a week after saying the two companies were in preliminary talks.
TUI said a stock bid for TUI Travel would not be in TUI shareholders’ interest, according to a statement today. TUI, based in Hanover in northern Germany, dropped the most in six months. The company is barred by U.K. takeover rules to make a fresh approach for the U.K. company for six months.
“It is unlikely that the TUI Travel board has made any unworkable demands,” JP Morgan Securities Plc analysts including Jaafar Mestari said in a note. “We would see as more likely that the board of TUI AG received negative feedback from its investor base on the idea of crystallizing the 30 percent discount to net asset value at which the company trades.”
The German company owns about 55.47 percent of TUI Travel’s outstanding shares, and the stake is valued at more than all of TUI’s market capitalization. Combining with TUI Travel would have given the German company access to the U.K. company’s cash flow and help cut costs from dual administrations and listings.
TUI declined as much as 38 cents, or 4.7 percent, to 7.56 euros in Frankfurt, while TUI Travel, which runs the Thomson and First Choice units, dropped as much as 13.1 pence, or 4.5 percent, to 279 pence in London.
TUI had a month to formally lay out its intentions with TUI Travel, after saying on Jan. 16 that the companies were at the “very early stage” of what they termed a “nil premium all-share merger. TUI has been under pressure from shareholders including Russian billionaire Alexey Mordashov and shipping magnate John Fredriksen to overhaul its structure.
‘‘TUI AG will continue fully to exercise its role as majority shareholder,’’ the company said today in a statement announcing its withdrawal. TUI reports earnings on Feb. 7 and will hold its annual general meeting a week later, where it plans to announce new leadership.
The U.K. business was formed in 2007 when TUI combined its travel unit with First Choice Holidays Plc. TUI itself traces its routes back to one of Germany’s most extreme corporate makeovers, from a mining and smelter company into one of Europe’s largest tourism providers.
Chief Executive Officer Michael Frenzel, who will be succeeded by Friedrich Joussen at the AGM, has been trying to focus TUI on its tourism business by putting units such as the Hapag-Lloyd shipping assets up for sale.
TUI said today that it’s decision to withdraw is ‘‘based on the assessment that a share-based transaction at current exchange ratios is not in the interest of TUI shareholders.” The companies had not specified a merger ratio when they first said they’re exploring a combination.