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TUI AG and TUI Travel to merge

The largest travel company in Europe is set to be created once the merger of TUI AG and TUI Travel is finalised.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
TUI logo on an umbrella
Source: Bloomberg

Listed in Germany, TUI AG already owned a 54.5% stake in TUI Travel before the deal was agreed upon. The shareholding is a legacy of when TUI AG’s tourism business was wed to the British firm First Choice in 2007.

For several years TUI AG persued TUI Travel, but its advances were always knocked back by the former. Peter Long, the CEO of TUI Travel, was resistant to the idea of a merger with the German company until Friedrich Joussen took over as the new CEO of TUI AG. Mr Long is a veteran of the travel industry, having spent 30 years in the business, while Mr Joussen previously headed Vodafone’s German business and is relatively new to the travel industry.

After a meeting between Mr Long and Mr Joussen the two chief executives realised their outlook for their respective businesses was ‘aligned’, and both will be co-CEO of the organisation until 2016 when Mr Long will become the chairman. The day-to-day running of the entity will be left to Mr Joussen, while the more experienced Mr Long will play a key role in the firm’s long-term strategy.

A merger that benefits all

The two companies needed at least 75% of shareholders to vote in favour of the merger for it to go ahead. In October, 99.85% of TUI AG shareholders backed the deal while 80% of TUI Travel shareholders approved of the agreement.

The new company will be worth around £7 billion which qualifies it for listing in the FTSE 100 index; its total headcount will be in the region of 72,000, making it the largest travel company in Europe. Putting ego to one side, it also makes financial sense; synergies are estimated to save the company €170 million.

We are still awaiting details of when the TUI Travel shares will be absorbed into TUI AG’s; for every one share held in TUI Travel you will receive 0.399 shares in the TUI AG. The newly-formed company will just go by the name of TUI. As a sweetener, TUI Travel shareholders will receive an interim dividend of 4.05p and there will be an extra dividend of 20.5p ahead of the merger.

TUIs to meet full-year target

In August, TUI Travel posted a 21% jump in third-quarter pretax profits; it would appear the company is on track to achieve its full-year target which will be released on 4 December. Traders are anticipating full-year revenues of £14.96 billion and adjusted net income of £351 million. This forecast compares with last year’s actual full-year revenue and adjusted income of £15.05 billion and £342 million respectively.

TUI AG had an even more impressive third-quarter update than its sister company. The German-listed company saw third-quarter pretax profits climb by 83%, and remains confident it will hit the top end of analysts’ estimates for its full-year numbers. The final-year figures will be reported on 10 December, and the consensus is for revenue of €18.76 billion and adjusted net income of €150 million. These forecasts represent a 1.5% and 16.27% increase on last year’s respective figures.

Equity analysts are very bullish on both stocks; out of the 14 recommendations on TUI Travel, nine are buys, four are holds and one is a sell, with an average target price of £4.49.

Looking at TUI AG, the breakdown is as follows: 13 buys, four holds and one sell, the average target price is €14.80.

TUI Travel’s share price is getting support at the 200-day moving average of £4, and the next level of support is a £3.80. The immediate target to the upside is £4.40, and if the record high of £4.45 is cleared then £4.50 will be on the radar.

TUI AG shares are being supported by the 50-hour MA of €12.80, if that level is punctured the €12.40 level is likely to provide support. The €14 area is the initial target to the upside, and the next level to watch for is €15.

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CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.