Hedge funds and Private Equity - PES

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Executives have also been affected by the cost-cutting reorganisation. The plans foresee up to
400 of them losing their jobs, while others are to be demoted or will have to accept reductions
in salary.
2.4 Corporate governance and economics
Because of pressure from the capital markets – or, to be more precise, investment funds at
the last AGM – as well as increasing competition in the airline industry, TUI management is planning
to integrate the two airlines (HLF and HLX) into a single brand. The two companies will
remain independent legal entities and HLX will deal with marketing while HLF takes responsibility
for flying operations. However, it is not yet clear where the employees will fit into the new structure.
In addition, the productivity of the aircraft fleet is to be improved, and sales and marketing
are to be brought together to cut costs further.
As a result of the restructuring there have been a number of personnel changes at management
board level in different parts of the company, as well as changes in the supervisory board.
2.5 Management policies and shareholder activism: stock option
programs, effects on Board and CEOs, management fees,
employee information
In October of 2006 several investors wrote an open letter, in which they challenged the chairman
of the board Michael Frenzel to split up the TUI group. They wanted management to officially
announce a timetable for the split up of the tourism and shipping divisions within the next 6 to
18 months. Furthermore they already discussed their strategy proposal with the head of the supervisory
board Jürgen Krumnow. In their meeting with Krumnow the shareholders demanded a
stop of acquisitions and the election of new members for the supervisory board, who are experts
for shipping and tourism.
Author of the open letter is the British asset manager Hermes, who has invested in shares of TUI
for the pension funds of British Telecom. Supposedly the British have got the backup of DWS,
a subsidiary company of the Deutsche Bank and the leading provider of collective investment
schemes in Germany.
The step they have taken is a form of escalation in matters of firm-shareholder-relations, that is
virtually unheard of in Germany. Usually investors discuss their ideas with the operative management.
If they are very displeased, they then seek the publicity of a general meeting to enforce
their arguments. The open letter raises the pressure for Frenzel to take action until the next
general meeting in May of 2007. Statements several investors have made, seem to indicate, that
a significant part of the shareholders will try to force the dismissal of Frenzel, if he doesn’t act
as they wish.
2.6 Effects on public finances
At the end of 2005, some 16,000 of TUI’s approximately 63,000 employees were employed in
Germany. The company is a particularly important employer in Hanover, where it has its headquarters,
and in Hamburg, where the head office of its shipping subsidiary Hapag-Lloyd is located.
It is extremely likely that breaking it up would have a negative impact on employment in
the tourism business – indeed it is questionable whether TUI as a company would survive longterm
in its current form, without its second supporting leg of shipping.