Executive summary - Udo Bullmann

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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 BritishThomson Travel Group assumed in 2000. Other 60 Mil. EUR came at by goodwill depreciation of the Frenchsubsidiary firm Nouvelles Frontieres. In addition, the result is loaded by high expenditures of 100 Mil. EUR for thereorganisation of the tourism business and 110 Mil. EUR for the integration of the Canadian CP Ships assumed in2005. The company capital rate thereby falls on approx. 20%.2.2 Debt structure, alteration of company capital management fees requested by LBOThe transformation of the steel company Preussag AG into the tourism business TUI AG resulted in a sharp increasein the company’s level of debt, in which a substantial proportion of the external capital provided was refinancedthrough bonds issued on the capital market. After a period in which the company consistently reduced its level ofdebt, with the aim of obtaining as positive a credit rating as possible, in 2005 it issued further bonds to finance thepurchase of the Canadian shipping company CP Ships, for which it paid approximately €2 billion. On 31 December2005 the level of debt was about 64%.2.3 Effects on job creation, investments in training and education of labour force, investments ininnovationThe 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 thecapital markets, the company has for years implemented cost reduction and restructuring programmes. Its currentprogramme “One Company” is intended to save around €50 million. The plans include slimming down andproviding a new organisation for the travel business, particularly in the main market, Germany. Since 2002 some6,000 jobs have already gone in the tourism division. A further 2,000 jobs are to be lost worldwide as a result of thetakeover of the Canadian shipping company at the end of 2005, although 100 additional jobs are to be created in theHamburg headquarters.<strong>Executive</strong>s have also been affected by the cost-cutting reorganisation. The plans foresee up to 400 of them losingtheir jobs, while others are to be demoted or will have to accept reductions in salary.2.4 Corporate governance and economicsBecause of pressure from the capital markets – or, to be more precise, investment funds at the last AGM – as well asincreasing competition in the airline industry, TUI management is planning to integrate the two airlines (HLF andHLX) into a single brand. The two companies will remain independent legal entities and HLX will deal withmarketing while HLF takes responsibility for flying operations. However, it is not yet clear where the employees willfit into the new structure. In addition, the productivity of the aircraft fleet is to be improved, and sales and marketingare 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 indifferent 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 andCEOs, management fees, employee information;In October of 2006 several investors wrote an open letter, in which they challenged the chairman of the boardMichael 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 theirstrategy proposal with the head of the supervisory board Jürgen Krumnow. In their meeting with Krumnow theshareholders demanded a stop of acquisitions and the election of new members for the supervisory board, who areexperts for shipping and tourism.Author of the open letter is the British asset manager Hermes, who has invested in shares of TUI for the pensionfunds of British Telecom. Supposedly the British have got the backup of DWS, a subsidiary company of theDeutsche 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 ofin Germany. Usually investors discuss their ideas with the operative management. If they are very displeased, theythen seek the publicity of a general meeting to enforce their arguments. The open letter raises the pressure for Frenzelto take action until the next general meeting in May of 2007. Statements several investors have made, seem toindicate, that a significant part of the shareholders will try to force the dismissal of Frenzel, if he doesn't act as theywish.2.6 Effects on public financesAt the end of 2005, some 16,000 of TUI’s approximately 63,000 employees were employed in Germany. Thecompany is a particularly important employer in Hanover, where it has its headquarters, and in Hamburg, where thehead office of its shipping subsidiary Hapag-Lloyd is located. It is extremely likely that breaking it up would have anegative impact on employment in the tourism business – indeed it is questionable whether TUI as a company wouldsurvive long-term in its current form, without its second supporting leg of shipping.The consequences for jobs in Hamburg if Hapag-Lloyd were to be sold are also unclear. There are several possiblepurchasers, including the Oetker group in Bielefeld, which owns the shipping company Hamburg Süd, and theDanish shipping group AP Møller-Maersk, although the latter company has denied any intention of buying.The TUI group calculates its current tax liability on its consolidated earnings for 2005 at €87 million. TUI AG on itsown shows a tax liability of around €10 million in its profit and loss accounts. The consequences for the publicfinances of a break-up of the company cannot be estimated at this stage – or, to be more precise, they depend on thefuture location of current operations.ReferencesHandelsblatt 11.05.05, S. 25; Wirtschaftswoche 12.05.05, S. 113 f.; Hannoversche Allgemeine Zeitung 02.12.04, S.11; Frankfurter Allgemeine Zeitung 29.08.05, S. 12;Financial Times Deutschland 04.09.06, S. 17; Börsen-Zeitung28.09.06, S. 8; finance 10/06, S. 7274; Financial Times Deutschland 16.10.06, S. 1;Börsen-Zeitung 17.10.06, S. 9;HAZ 07.11.06, S. 9; Süddeutsche Zeitung 10.11.06, S. 25; Financial Times Deutschland 10.11.06, S. 8; Börsen-Zeitung 10.11.06, S. 10; Hannoversche Allgemeine Zeitung 14.11.06, S. 9; Börsen-Zeitung 08.12.06, S. 9; FinancialTimes Deutschland 08.12.06, S. 6; Frankfurter Allgemeine Zeitung 08.12.06, S. 19; Süddeutsche Zeitung 08.12.06,S. 21; Süddeutsche Zeitung 11.12.06, S. 21; Handelsblatt 14.12.06, S. 14; Handelsblatt 14.12.06, S. 13; FrankfurterAllgemeine Zeitung 15.12.06, S. 22; Handelsblatt 15./16.12.06, S. 16; Handelsblatt 16.12.06, S. 18; Börsen-Zeitung16.12.06, S. 1, S. 11; Frankfurter Allgemeine Zeitung 16.12.06, S. 15; Süddeutsche Zeitung 16./17.12.06, S. 25;Wirtschaftswoche 18.12.06, S. 80-82; Handelsblatt 18.12.06, S. 18; Financial Times Deutschland 18.12.06, S. 6;finance 12/06, S. 66-68; Börsen-Zeitung 11.01.07, S. 11; Süddeutsche Zeitung 15.01.07, S. 19; Financial TimesDeutschland 30.01.07, S. 11; www.Frankfurter Allgemeine Zeitung.net 01.02.07, 08:56 bzw. 09:46 Uhr
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HEDGE FUNDSAND PRIVATE EQUITY -A CR
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The need for long-term investmentTh
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On the basis of a coherent analysis
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The pension fundsWhere does all the
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3. The target company is merged wit
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Societies’ response - current nat
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In most of the case studies, PE inv
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huge tax advantages when the rate o
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known to bank supervisors. Those da
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provide transparency with respect t
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The demand for change and better re
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industrial policy, focusing on know
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AcknowledgementsThis report has bec
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The situation we are facing now is
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market to promote the knowledge-eco
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Our desire to separate the single s
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Typically a single strategy HF oper
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In most European countries, fund ma
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It should also be signalled that:
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Institutional investorsCurrent and
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leverage in order to benefit from s
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1.6 The costs, the management fees
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only remaining way to boost returns
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A majority of hedge funds have limi
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Our analysis is that these concerns
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Average annual returnsTremont HF in
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1.11. Tendency of crowdingDespite t
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• Corporate governance:“In the
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Onshore FoHFsCountryUnitedKingdomGe
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ItalyBank ofItaly•Specializedasse
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1.14 Societies’ response - curren
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Investments are often in individual
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employed 21 . Leverage effect expla
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Investments are sold off to other c
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Private Equity: European trends in
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time because of the longer holding
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Bain CapitalPartners 74.7 9Thomas H
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Sources of new funds raised (2005)C
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The private equity manager virtuall
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The fund structuring arrangements f
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ownership transfers. But buyout cap
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equity value chain. The main areas
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of the table but that less mature c
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UCITS (Undertakings for Collective
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Article 49Within the framework of t
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open and secure retail markets and
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offeree company must give its views
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In its Communication on worker info
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est practices, promoting innovative
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- Work to ensure more consistent an
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destabilising the financial markets
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& LBOs invest. It increases financi
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In particular, incumbent managers o
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long-term competitiveness of the ac
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It also leads to further weakening
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If HFs and LBOs have brought uncert
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the social responsibilities of comp
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areas after recapitalisation 11 . I
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Furthermore, the funds in many case
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privatised with a view to stimulati
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asset stripping, and the offering o
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dividend to Valentia.The second pub
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***The three country case studies o
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eturns well below those achieved by
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investment funds - in the UK alone
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4.2 The issue of pension fundsThe p
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One year earlier the British Financ
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the fund exceeds the highest value
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5.3 Short sellingHistorically, hedg
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global financial markets. In 1998 t
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implications associated with the li
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The classic source of leverage is l
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I talk to have got a prayer in the
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The main reason for the lack of inf
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7. The need for change to ensure a
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clearly destructive must be prevent
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European Union.Part III is going to
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2. Market transparency - a common i
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International Settlements in Switze
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3.2 The main beneficiaries of regul
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within jurisdictions with enhanced
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In our view, if we want to promote
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investors.The EC should set up an i
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Alternative investment fund manager
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widely differing impacts of PE acti
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estrict investment to specific asse
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Clearly the governance authorities
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paid. There is therefore a need for
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5. Our immediate proposalsIn the pa
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Page 184 and 185: ANNEX 1 - Case studiesANNEX 1 - Cas
Page 186 and 187: 1. Company description ............
Page 188 and 189: AA1. Company descriptionThe Automob
Page 190 and 191: Autoteile Unger1. Company descripti
Page 192 and 193: Bulgarian Telecommunications Compan
Page 194 and 195: Deutsche Börse1. Company descripti
Page 196 and 197: DIS1. Company descriptionThe DIS De
Page 198 and 199: DT-GROUP1. Company descriptionDT Gr
Page 200 and 201: (2005 €610m) resulting in an EBIT
Page 202 and 203: FRANS BONHOMME1. Company descriptio
Page 204 and 205: Friedrich Grohe AG1. Company descri
Page 206 and 207: 3. LBO exit (secondary LBO, IPO, li
Page 208 and 209: industrial sector level. A compromi
Page 210 and 211: Linde1. Company descriptionLinde is
Page 212 and 213: 2.5 Protection of minority sharehol
Page 214 and 215: marketing outside Germany and to bo
Page 216 and 217: 2.3 Effects on job creation, invest
Page 218 and 219: Peguform1. Company descriptionThe h
Page 220 and 221: PICARD1. Company descriptionPicard
Page 222 and 223: STORK1. Company descriptionThe indu
Page 224 and 225: TDC1. Company descriptionTDC is the
Page 226 and 227: TELECOM ITALIA GROUP1. Company desc
Page 228 and 229: 2.5 Corporate governance and econom
Page 232 and 233: Viterra1. Company descriptionViterr
Page 234 and 235: Glossary 1Absolute returns: The ret
Page 236 and 237: Hurdle rate: A rate of return that
Page 238: Stock option: An individual's right
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Executive summary - Udo Bullmann

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