TUI May Buy More Of TUI Travel

TUI may use the proceeds of a planned divestment to buy more shares in Europe's largest tour operator TUI Travel, two sources close to the company said.

TUI AG owns about 55 percent of TUI Travel, an entity formed after the merger of TUI's travel business and British peer First Choice in 2007.

TUI Travel, which generates the lion's share of TUI's operating earnings, currently has a market value of EUR€3.5 billion (USD$4.74 billion).

"There are plans to float (TUI’s) Hapag-Lloyd within the next three months, and TUI is likely to buy TUI Travel shares within another 3-4 months after that," a source close to the company said.

TUI has quantified its investment in Hapag-Lloyd -- in which it holds just under 50 percent -- at EUR€2.5 billion, but experts believe that TUI will not sell the whole Hapag-Lloyd stake at once, and rather keep some shares to benefit from a possible share price rise following the IPO.

"The management has to act swiftly to prevent whetting the appetite of its owners for a special dividend," another source close to TUI added.

In preliminary talks, some main shareholders have for now agreed to see the Hapag proceeds invested in TUI's tourism business, one of the sources said.

Strengthening ties between TUI and TUI Travel could create annual synergies and save taxes of a combined EUR€700 million to EUR€800 million, sources have said.

A TUI spokesman said, "There is no firm timetable for the several options TUI has."

TUI's chief executive Michael Frenzel has said several times that funds from the sale of the Hapag-Lloyd stake could be put into the tourism business.

In December, TUI and the Hapag-Lloyd shareholder group Albert Ballin picked three investment banks to prepare a possible flotation of a stake in the world's fifth biggest container shipping company in 2011.

While even the total of possible Hapag-Lloyd proceeds would probably not be enough to get hold of all TUI Travel shares, the group could get full control through other options.

These include TUI paying in shares or raising its TUI Travel stake through a non-cash consideration in which it would contribute its hotels and cruise business in return for TUI Travel shares, sources close to the company have said in the past.