FRANKFURT Europe's biggest tour operator TUI Travel TT.L and its majority owner TUI AG plan to merge in an all-share, nil-premium deal worth around 4.4 billion pounds ($7.49 billion) to cut costs and create the world's largest leisure tourism group.
Investors have long expected such a tie-up since TUI Travel was created in 2007 from the merger of Britain's First Choice and the travel business of TUI AG (TUIGn.DE), which now owns around 55 percent of the London-listed firm.
The two companies last held merger talks back in 2013 but a deal collapsed after TUI AG said an offer would not make sense given their share prices at the time.
Since then, shares in TUI AG have risen 65 percent as Chief Executive Friedrich Joussen implements cost cuts and improving results at its hotels and cruises units.
Shares in TUI Travel, meanwhile, have gained 44 percent.
"From a timing perspective, it has become very attractive with all the work Joussen has done at TUI AG over last 18 months," TUI Travel CEO Peter Long told journalists.
"And what's different to last time is that we have the terms of a possible deal that have been agreed by both boards."
The two said a deal would result in potential cost savings of at least 45 million euros ($61 million) a year as they cut out overlapping functions and delist shares from Germany, plus a tax benefit - which, had they been a combined company last year, would have totaled 35 million euros due to carried over tax losses in Germany.
Under the plan, TUI Travel shareholders would receive 0.399 new TUI AG shares. The two said a firm merger offer would be made after mid-September, with closing expected by spring 2015. Long said he hoped the closing would be nearer the start of 2015.
As the deal is nil premium, the value of an eventual offer will be based on the average value of the TUI Travel share price in the run-up to the announcement. On the day before the merger plan was announced, TUI Travel had a market value of 4.4 billion pounds.
TUI AND TUI
The combined group will comprise the main tour operations of TUI Travel and also the hotels and cruise units of TUI AG, which have 232 hotels. Joussen, who is looking at expanding the hotels and cruise business, said the two would be able to grow more quickly as an integrated group.
Combined, the groups' mainstream leisure tourism businesses would have annual revenues of 13.4 billion pounds and earnings before interest and tax and amortization (EBITDA) of 706 million pounds.
TUI AG's 22 percent stake in container shipper Hapag-Lloyd [HPLG.UL] remains up for sale. TUI Travel's online accommodation business, such as laterooms.com, and its specialist and activity businesses, which offer adventure and educational trips for example, would be operated separately, though that doesn't necessarily mean they are up for sale right now, Long said.
TUI AG's largest shareholder Alexey Mordashov, who owns over 25 percent and has previously pushed for a tie-up between the two to simplify their holding structure, supports the deal, the two companies said in the statement on Friday.
Under the deal, the new group would be incorporated and headquartered in Germany, but would be listed in London on the FTSE.
TUI AG's shares would be delisted from the regulated market in Frankfurt after completion of the deal, though would still be quoted on the open market to permit trading in euros.
Shares in TUI Travel closed up 3.5 percent at 405.04 pence, while shares in TUI AG closed up 5.5 percent at 12.595 euros.
Joussen and Long will act as joint chief executives of the merged group until February 2016, with Long to then become chairman and Joussen to continue as CEO.
TUI Travel is being advised by Lazard, Bank of America Merrill Lynch and Barclays, while Deutsche Bank and Greenhill are advising TUI AG.
(Additional reporting by Peter Maushagen and Kate Holton; Editing by Pravin Char and Sophie Walker)