Shareholders will probably agree to the radical capital cut

Frankfurt The plan is radical: On Tuesday, the shareholders of the travel group Tui, which was hit by the pandemic, will meet. The most important item on the agenda of the virtual general meeting: the vote on a capital reduction at a ratio of ten to one. After that, Tui wants to increase the capital – by up to 1.8 billion euros.

There is much to suggest that the shareholders will approve the project. It’s not the first time the company has taken a toll on its shareholders. It is already the fourth capital increase within a few years. The group has raised a good two billion euros in equity.

With the current measure, the management around CEO Sebastian Ebel wants to shake off the consequences of the pandemic and replace the remaining state aid. The group had received 4.3 billion euros from the state in several steps. Some aid has already been returned.

A capital reduction has significant consequences for shareholders. Your relative stake in the company remains the same, since ten shares become one share for all shareholders. The merger also has the effect of increasing the market value of the remaining shares.

But if shareholders want to avoid having their relative stakes diluted in the subsequent capital increase, they must buy new shares accordingly. Tui is planning so-called rights issue capital increases. They guarantee the existing shareholders the privilege of acquiring the new shares first.

So although the group is asking the shareholders again for money, these Ebel will probably follow – of necessity, as the statement by the German Protection Association for Securities Ownership (DSW) shows. The shareholders’ protectors want to abstain from the decisive items on the agenda. “These capital measures are regrettable,” says the organization: “Unfortunately, however, they are probably necessary in order to be able to set up the company securely again on the capital side.”

Major shareholder Mordashov is not allowed to vote

The Protection Association of Investors (SdK) argues in a similar way: “The repatriation agreement concluded with the economic stabilization fund for state aid makes sense.” The measures proposed for this are expedient.

Voting rights advisors also recommend approval, according to financial circles. The largest shareholder, the Russian oligarch Alexey Mordashov, is not allowed to vote. Its shares are frozen because of the sanctions. He cannot participate in the capital increase either, which is why his previous share of a good 30 percent will shrink significantly.

Last but not least, there is probably a reason why there will probably be no uprising among the shareholders. So far, the state has the right to convert parts of the state aid into shares. The associated risk of a dilution of the shares is averted if all capital measures are implemented as planned. Because the state is then no longer involved with Tui.

>> Read about this: New Tui boss relies on individual package trips – with flat-rate customer protection

But that has its price. Up to one billion euros is needed to repay the silent participation and a convertible bond from the state. Interest and a fee for the state’s conversion waiver are included here. In addition, there is a further 800 million euros to replace loans from the state bank KfW. The company does not need the approval of the shareholders for the planned capital increase, it is covered by several advance resolutions.

Tui boss Sebastian Ebel

The management of the travel group sends optimistic signals.

(Photo: TUI)

Perhaps one or the other shareholder, with his consent, is also counting on the optimism of the management. Recently, the travel group’s business has been going well again. In the fiscal year that ended at the end of September, the company achieved adjusted operating earnings before interest and taxes (EBIT) of EUR 409 million with sales of EUR 16.5 billion. A financial year earlier, Tui had recorded an operating loss of two billion euros.

Most recently, the group board around Ebel had not dared to make a forecast for the coming months. But on the one hand, advance bookings are almost back to the pre-crisis level. On the other hand, despite high inflation, customers are willing to spend more on their vacation.

Vacationers spend more money

The trips are getting a little longer, and many are booking higher travel categories. According to management’s most recent information, the average sales price in the current winter season was 28 percent higher than in the same period last year. However, Tui boss Ebel assumes that this development will normalize somewhat again.

At the same time, Tui wants to reach new customers – for example through the Tui Musement division, which offers customers tours and activities. The idea behind it: People are planning their holidays more and more according to what they want to do and no longer according to where they want to go. If, for example, it is a diving holiday, the customer will ideally come across the relevant courses from Tui and book the rest of the trip there. To this end, Tui wants to significantly expand the digital options for holiday planning.

Tui will also report its figures for the first quarter immediately before the general meeting. Then the shareholders have a further orientation as to where the tourism giant is headed.

More: Travel – DER Touristik plans takeover of FTI.

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