The City has broadly welcomes the proposed merger of Tui Travel and TUI AG, although the financial upside was said to be offset by a change in strategy according to Morgan Stanley.
In the wake of Friday’s announcement Tui Travel’s share price rose back above the 400p mark it had slipped below in recent weeks.
And analysts in Germany and the UK gave the move a general thumbs up ahead of an analysts and investor briefing today at the London Stock Exchange.
Jochen Rothenbacher, an analyst at Frankfurt-based Equinet Bank AG, said: “The proposed transaction is positive and may create value for both companies. The exchange ratio seems to be somewhat more favourable for shareholders of TUI AG than for those of TUI Travel.”
In a note issued yesterday Morgan Stanley said the merger had a number of positive and some key negatives.
It said the positives were:
• Annual savings of £36 million in central cost and £28 million in tax equate to circa £500m capitalised value, or 8% to combined market cap;
• The planned disposal of some non-core businesses could pave the way to a £1 billion cash return at some point;
• We estimate a £320 million value transfer from TUI AG to Tui Travel shareholders from merging with TUI AG’s undervalued business… a 12% premium for Tui Travel minorities, taking its total merger benefit to circa 20%;
• The dual UK listing should avoid any flowback issues.
And the negatives were:
• Lack of a headline premium for Tui Travel shareholders (though optical);
• Something of a change in strategy for TuiTravel (becoming more asset heavy, selling some of its better businesses);
• Tui Travel effectively taking on its parent’s conglomeracy (in the short term at least);
• A change in the Tui Travel investment case (from growth to restructuring);
• A rather complex Board structure.
Morgan Stanley said it saw the merger and being financially driven with both sides benefitting from cost and tax synergies.
The note concluded: “On balance? We think the financial upside to Tui Travel is somewhat offset by an apparent change in strategy and a different investment thesis.
“Tui Travel management needs 75% support from its minority shareholders for the proposed merger to go ahead, so tomorrow’s meeting and the roadshow ahead are important.
“We think the proposed merger is positive for overweight-rated TUI AG, but then it has few other long-term options.”