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Comment: Tui’s bid talks

Mark Kelly, Special Situations strategist at Olivetree Securities, comments on Tui’s bid talks…

“Yesterday’s speculation and price movement suggests that Tui Travel was approached by its parent company Tui AG to buy the remaining 44.9% stake.
 
“We understood that Tui Travel has been in touch with the sovereign wealth fund of Oman, which apparently agreed to buy Tui Travel’s Hapag Lloyd stake.  A move which is necessary for TUI AG in order to acquire the stake in Tui Travel.
 
“While Tui AG had argued it would happen before the summer, we have remained sceptical. As the backdrop for shippers is as bad as it has been, the sale will possibly not happen straight away and therefore the price might disappoint.
 
“Tui Travel shares have been a material outperformer this year because of the continued M&A speculation.  Compared to other players in the industry, TT shares are down 7% whereas Thomas Cook shares are down 35% and Maerskb DC is down 19% on a 12 month view.
 
“Tui Travel shares are now trading at a record high premium of 55% to Thomas Cook, which we think is too high. Given that Thomas Cook owns a large stake in Tui Travel we believe a takeout premium of 15-20% would seem more adequate.
 
“Tui Travel trades on 9.4x 2011e PER vs Thomas Cook on 6.1x. This suggests that either Tui Travel PE is too high or Thomas Cook is too low.
 
“We expect that the container shipping industry will face difficulties this year as rates decrease, capacity increases, utilization levels stay low and profitability turns to losses."

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