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Last updated: January 16, 2013 7:13 pm
The independent directors of Tui Travel, which is 56.4 per cent owned by Tui, confirmed the discussions in a statement on Wednesday but stressed that talks were at an early stage.
“Discussions are on the basis that any such combination, if effected, would be achieved not by a reverse takeover but by means of a nil premium, all-share merger,” the independent directors said.
Tui Travel is Europe’s largest tour operator and was formed after the merger of Tui’s travel business and British peer First Choice in 2007.
Ideas to combine Tui and Tui Travel have been considered for several years but have resurfaced as the German parent company prepares for a change of chief executive, with Michael Frenzel due to stand down next month after 19 years.
Under UK Takeover Panel rules, Tui has until February 13 to announce a firm intention to make an offer for Tui Travel, or walk away. Tui could not be reached for comment and Tui Travel said its statement on the preliminary talks had been issued without the German group’s consent.
Any deal would almost certainly need support from Tui’s largest shareholders – Alexei Mordashov, chief executive of Russia’s Severstal, who owns 25 per cent, and John Fredriksen, the Norwegian shipowner, who has 15 per cent. Mr Fredriksen also owns 5.4 per cent of Tui Travel.
For Tui Travel’s independent directors, key issues include the future of chief executive Peter Long, whether a combined company would be headquartered in Germany or the UK, and where it would be listed.
Tui has wanted to improve its structure and has increased its focus on tourism after partially completing the sale of Hapag-Lloyd , although it still owns 22 per cent stake of the container shipping line.
Klaus Mangold, supervisory board chairman of Tui, said last year in a German newspaper interview that the structure of the two companies was “not optimal” and lamented the conglomerate discount at which Tui shares trade. “We have to see what is do-able,” he said.
Before Wednesday’s statement Tui’s market capitalisation was about €1.9bn, less than the value of its Tui Travel stake.
Analysts at Morgan Stanley said this month that Tui was “a holding company with little operational control”, and a combination of the two groups could cut costs and bring hotel synergies and tax savings.
They said Friedrich Joussen, Tui’s incoming chief executive, who was previously at Vodafone’s German unit, “has a good reputation for operational excellence and financial discipline”.
Shares in Tui Travel rose almost 4 per cent to £2.93 in London. Tui closed 8.8 per cent up to €8.05.
The announcement of talks comes just after Tui Travel last month reported a record year of profits following a strong performance in UK markets and improved operational efficiency.
The leisure company posted an operating profit increase of 12 per cent to £526m on a constant currency basis for the year ended September 30 2012. The group’s underlying operating profits were £490m, up from £471m a year ago.
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