TUI AG And UK Subsidiary TUI Travel Plan To Merge

(RTTNews) - German travel and tourism group TUI AG (TUIFF.PK) and its UK subsidiary TUI Travel plc (TT.L) have reached a deal in principle on the terms of a possible all-share nil-premium merger, the two companies said Friday.

Under the terms of the proposed deal, TUI Travel shareholders, other than parent company TUI AG and certain connected parties, would receive 0.399 new TUI AG shares for each TUI Travel share held by them. TUI AG owns an almost 55 percent stake in TUI Travel.

The companies clarified that talks were ongoing and there can be no certainty that an offer will be made. However, they expect that an announcement of a firm intention to put forward a merger proposal would not be made before mid-September 2014, with closing anticipated by around Spring 2015. TUI AG had approached TUI Travel about a potential merger in early 2013, but that deal fell apart.

On consummation, the deal would bring together the content portfolio of hotels and cruise ships of TUI AG with access to customers through the distribution capability and unique holiday concepts of TUI Travel.

The two companies expect the merger to create a global leader in the integrated leisure tourism business, with potential cost savings of at least 45 million euros per annum by the third year following completion of the merger, in addition to certain cash tax benefits.

The companies expect to incur one-off integration costs of about 45 million euros to achieve these cost savings.

The deal is expected to simplify the current group structure, while top-line growth is expected to be enhanced by broadening the portfolio of unique holiday experiences, increased occupancy levels in existing hotels, the future expansion of TUI AG's core hotel and cruise activities, and integrated yield management.

The companies noted that growth in the core mainstream tourism business will be accelerated, while non-core businesses will be run separately and maximized for value. Meanwhile, the stake held by TUI AG in Hapag-Lloyd Container Shipping will be held as business for sale within the group.

The merged company will be based in Germany with a two-tier board structure, and listed on the London Stock Exchange. Following completion of the merger, TUI AG's shares are expected to be delisted from the regulated market of the Frankfurt Stock Exchange.

TUI and TUI Travel intend that any dividends paid for the 2013-14 financial year will ensure equivalent payment to both TUI and TUI Travel shareholders, taking into account the exchange ratio and in line with the current TUI Travel dividend policy.

The companies plan to review the future dividend policy following completion of the merger. In light of its expected profits and free cash flow generation, the companies target a level that is in line with TUI Travel's current dividend policy.

Russian billionaire Alexey Mordashov, the largest shareholder in TUI AG, has indicated his support for the merger.

TUI AG said it will propose to its shareholders to increase the supervisory board members from 16 to 20. The supervisory board would comprise ten members representing the shareholders, drawn in equal number from both TUI AG and TUI Travel, in addition to ten employee representatives.

The new supervisory board would be chaired by Dr. Klaus Mangold, Chairman of the Supervisory Board of TUI AG. Michael Hodgkinson, Deputy Chairman and Senior Independent Director of TUI Travel, would be co-vice chairman along with Frank Jakobi, who would also be a representative of the employees.

Mangold's term as chairman of the supervisory board will end at the annual general meeting in February 2016 and he will then retire. On the proposal of the supervisory board, Peter Long, Chief Executive of TUI Travel, will be suggested as a member of the board at the annual general meeting.

Long and Friedrich Joussen, Chief Executive of TUI AG, will become joint chief executives of the combined company until February 2016 and would be jointly responsible for achieving the envisaged synergy benefits from the merger.

Joussen would lead the company as sole CEO from February 2016 onwards, while Long would then become chairman of the supervisory board.

On Frankfurt's Xetra exchange, TUI is trading at 12.50 euros, up 0.56 euros or 4.69 percent on a volume of 4.23 million shares.

On the London Stock Exchange, TT.L is trading at 405.70 pence, up 15.70 pence or 4.03 percent on a volume of 6.37 million shares.