Hedge funds and Private Equity - PES

from the tourism business, which is closely linked to the business cycle, with better results from
shipping. However, as Hapag-Lloyd had moved into loss owing to higher fuel cost and lower
freight prices, this strategy was now questioned by the investment funds.
The employee representatives on the supervisory board produced a statement in September
2006, expressing their support for the concept of an integrated tourism business and the twopillar
strategy. In addition, trade union representatives have already sought a meeting with the
mayor of Hamburg and further measures are being prepared.
In January, 2007 Richard Mayer, an infamous private investor, as a TUI stockholder appeared. This
had provided in the past at numerous companies as an uncomfortable and critical stockholder
for headlines. Mayer demands in the same way like some institutional investors, among them
DWS and Hermes, the splitting off and the sales of Hapag-Lloyd.
At the beginning of February the press for 2006 announced an expected loss of the TUI AG of
about 900 Mil. EUR. In 2005 TUI had achieved one more profit of 495 Mil. EUR. Following
causes were responsible for the high loss: An “Impairment test” to IFRS, the international balance
standard, proved goodwill depreciations at the rate of 700 Mil. EUR. The biggest interest
(500 Mil. EUR) of the depreciations arises by the goodwill depreciations on the British Thomson
Travel Group assumed in 2000. Other 60 Mil. EUR came at by goodwill depreciation of the
French subsidiary firm Nouvelles Frontieres. In addition, the result is loaded by high expenditures
of 100 Mil. EUR for the reorganisation of the tourism business and 110 Mil. EUR for the integration
of the Canadian CP Ships assumed in 2005. The company capital rate thereby falls on
approx. 20%.
2.2 Debt structure, alteration of company capital management
fees requested by LBO
The transformation of the steel company Preussag AG into the tourism business TUI AG
resulted in a sharp increase in the company’s level of debt, in which a substantial proportion of
the external capital provided was refinanced through bonds issued on the capital market. After
a period in which the company consistently reduced its level of debt, with the aim of obtaining
as positive a credit rating as possible, in 2005 it issued further bonds to finance the purchase
of the Canadian shipping company CP Ships, for which it paid approximately €2 billion. On
31 December 2005 the level of debt was about 64%.
2.3 Effects on job creation, investments in training
and education of labour force, investments in innovation
The aim of the management board chairman, Michael Frenzel, is to double operating earnings
to €1.3 billion, something which cannot be achieved with the tourist business alone, given its low
margins. Under the pressure of the capital markets, the company has for years implemented cost
reduction and restructuring programmes. Its current programme “One Company” is intended to
save around €50 million. The plans include slimming down and providing a new organisation for
the travel business, particularly in the main market, Germany. Since 2002 some 6,000 jobs have
already gone in the tourism division. A further 2,000 jobs are to be lost worldwide as a result of
the takeover of the Canadian shipping company at the end of 2005, although 100 additional
jobs are to be created in the Hamburg headquarters.
Annex – 21 Case studies
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