Europe's biggest tour operator TUI Travel and its majority owner TUI plan to merge in an all-share, nil-premium deal worth around GBP£4.4 billion (USD$7.49 billion) to cut costs and create the world's largest leisure tourism group.
Investors have long expected such a tie-up since TUI Travel was created in 2007 from the merger of Britain's First Choice and the travel business of TUI, which now owns around 55 percent of the London-listed firm.
The two companies last held merger talks in 2013 but a deal collapsed after TUI said an offer would not make sense given their share prices at the time.
Since then, shares in TUI have risen 65 percent as chief executive Friedrich Joussen implements cost cuts and improving results at its hotels and cruises units.
Shares in TUI Travel have risen 44 percent.
"From a timing perspective, it has become very attractive with all the work Joussen has done at TUI over last 18 months," TUI Travel CEO Peter Long told journalists.
"And what's different to last time is that we have the terms of a possible deal that have been agreed by both boards."
The two said a deal would result in potential cost savings of at least EUR€45 million (USD$61 million) a year as they cut overlapping functions and delist shares from Germany, plus a tax benefit. Had they been a combined company last year, the tax benefit would have been EUR€35 million due to carried over tax losses in Germany.
Under the plan, TUI Travel shareholders would receive 0.399 new TUI shares. The two said a firm merger offer would be made after mid-September, with closing expected by spring 2015. Long said he hoped the closing would be nearer the start of 2015.
As the deal is nil premium, the value of an eventual offer will be based on the average value of the TUI Travel share price in the run-up to the announcement. On the day before the merger plan was announced, TUI Travel had a market value of GBP£4.4 billion.
TUI AND TUI
The combined group will comprise the main tour operations of TUI Travel and also the hotels and cruise units of TUI, which have 232 hotels. Joussen, who is looking at expanding the hotels and cruise business, said the two would be able to grow more quickly as an integrated group.
Combined, the groups' mainstream leisure tourism businesses would have annual revenues of GBP£13.4 billion and EBITDA of GBP£706 million.
TUI's 22 percent stake in container shipper Hapag-Lloyd remains up for sale. TUI Travel's online accommodation business, such as laterooms.com, and its specialist and activity businesses, which offer adventure and educational trips, would be operated separately, though that doesn't necessarily mean they are up for sale, Long said.
TUI's largest shareholder Alexey Mordashov, who owns over 25 percent and has previously pushed for a tie-up between the two to simplify their holding structure, supports the deal, the two companies said in the statement on Friday.
Under the deal, the new group would be incorporated and headquartered in Germany, but would be listed in London on the FTSE.
TUI's shares would be delisted from the regulated market in Frankfurt after completion of the deal, though would still be quoted on the open market to permit trading in euros.
Joussen and Long will act as joint chief executives of the merged group until February 2016, with Long to then become chairman and Joussen to continue as CEO.