TUI TRAVEL is in talks to merge with its German parent Tui AG, it announced yesterday, sending its shares up four per cent.
However, analysts have raised concerns that the nil-premium merger will not be enough to entice Tui’s UK shareholders.
FTSE 100-listed Tui Travel, the group behind holiday companies Thomson and First Choice, said it was in “very early stage” talks with its former owner, which still owns a 56 per cent stake, about a possible tie-up.
It said that a nil premium all-share merger was the offer on the table, quashing rumours that the firms were planning a reverse takeover.
Tui AG’s major shareholders, including Russian billionaire Alexei Mordashov and Norwegian shipping magnate John Fredriksen, have been pushing the companies to save on costs by sharing resources.
But analysts following Tui Travel have noted that the firm’s shareholders would be diluted in a nil-premium deal, while joining forces with a company trading at a discount to its peers.
More than three-quarters of Tui AG profits last year came from its stake in Tui Travel.
“The nil premium element means the deal relies on finding big synergies like duplicated head office costs, but the firms already work together on a lot of things,” said Investec analyst James Hollins. “There’s clearly some merit to a deal but I think shareholders might hold out for a premium.”
The Takeover Panel has given the firms until 13 February to announce a formal offer.
ADVISERS TUI TRAVEL’S TALKS WITH TUI AG
LAZARD has had its fair share of thorny M&A work in the past few months, an experience that Tui Travel will hope gives the advisory firm the edge in its merger talks.
The firm was one of TNT’s bankers during its tie-up with UPS, which collapsed last week, and spent close to a year grappling with Glencore and Xstrata’s controversial merger.
Lazard’s Nicholas Shott worked with the Qatar sovereign wealth fund when it dramatically pushed Glencore and Xstrata into improving the terms of their partnership.
He is also known for his work in the media industry, featuring in the sale of the Telegraph to the Barclay brothers in 2004, and the Lebedevs’ 2009 purchase of the Evening Standard.
He became sole head of UK investment banking at Lazard after Alexis de Rosnay quit the firm to head up Canaccord Genuity.
Joining him on the Tui talks is Cyrus Kapadia, a managing director at Lazard. Kapadia has been at the firm for 15 years, and recently worked with Sportingbet during its planned takeover by Ladbrokes, which stumbled on regulatory grounds in 2011, and later on the firm's ongoing bid from GVC and William Hill.
Also on the deal is managing director Vasco Litchfield, who can count advising BSS during its £558m takeover by Travis Perkins among his notable deals.