TUI Travel flying high after approach from TUI AG - UPDATE

London-listed leisure travel company TUI Travel raced ahead of Wednesday afternoon after the firm confirmed that it has been approached by its German parent company, TUI AG, about a merger.

London-listed leisure travel company TUI Travel raced ahead of Wednesday afternoon after the firm confirmed that it has been approached by its German parent company, TUI AG, about a merger.

"The Independent Directors of TUI Travel have recently received an approach from TUI AG which may or may not result in a combination of the two companies," the company announced.

Shortly after the announcement, the shares, which opened today's session at 281p, surged 7.32% to 302p by 15:22.

TUI Travel was formed back in September 2007 after First Choice Holidays merged with TUI AG's travel and tourism division. TUI AG owns 56.4% of the UK company.

Sources had told Reuters earlier in the day that one of the possible "combinations" would be for TUI Travel to buy out TUI AG in an attempt to create synergies between the two groups. However, this - described as a 'reverse takeover' - was later denied by the UK-listed company.

TUI Travel said: "Discussions are at a very early stage, but 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."

While TUI AG already owns a majority stake in TUI Travel, it is thought not to have the funds to buy the remaining 43.6% interest that it does not own, these sources told Reuters.

"Far from straightforward"Analysts at Jefferies responded to the news, saying that the transaction, if any, is "likely to be far from straightforward, the benefits to TUI Travel shareholders unclear and with the risk that the highly rated TUI Travel management is not involved in the new company".

They pointed out while TUI AG has a big stake in TUI Travel, the parent's market capitalisation is less than 40%.

"While we believe there could be some synergies, notably a c€50m HQ cost at TUI AG and that there are tax losses to be exploited, we think these could be difficult and costly to realise.

"We also struggle to see why the largely UK shareholder base would want to dilute their equity in the pure play tour operations of TUI Travel, which rose over 70% in the last year, through a nil-premium merger with German-listed conglomerate TUI AG."

Recommended

Broker safety – your questions answered
Investment strategy

Broker safety – your questions answered

Cris Sholto Heaton answers more of your questions about the safety of stockbroker accounts
25 Mar 2020
How demographics affects stock valuations
Investment strategy

How demographics affects stock valuations

New research suggests that stock and bond valuations are driven by the age of the population – at least in the US.
24 Feb 2020
Do you own shares in Sirius Minerals? Here’s what you need to do now
Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021
The best investment trusts to buy for 2021
Investment trusts

The best investment trusts to buy for 2021

Sectors ranging from emerging markets to student accommodation look poised to do well this year, says David Stevenson, as he picks the best investment…
19 Jan 2021