TUI Travel and TUI AG agree all-share merger

London-listed travel operator TUI Travel and its German holding company TUI AG have reached an agreement on the terms for an all-share nil premium merger of the two companies, by means of a scheme of arrangement.

TUI Travel believes that the combination will accelerate its long-term growth by increasing its access to content on an exclusive basis, with more than 330 additional hotels and up to two additional cruise liners.

Based on historical performance, earnings before interest, tax and amortisation could see a positive impact of €1.4m per new hotel and a sizeable contribution from each ship.

In addition, the transaction is expected to generate cost savings of at least €45m per year and a large reduction in the company's underlying effective tax rate.

Further cost savings of €20m and significant increases in occupancy levels are also thought to be feasible.

Shareholders in TUI Travel will be eligible to receive 0.399 in new TUI AG shares in exchange for each one of their old shares as of the scheme record time.

Following the merger TUI Travel shareholders will control 46% of the combined company, which will have a fully-diluted equity value of approximately €6.5bn (£5.2bn).

The company resulting from the combination will continue to have a premium listing on the London Stock Exchange but will be domiciled in Germany.

Owners of TUI Travel stock will be paid a second interim dividend of 20.5p per share to include 10.5 pence per TUI Travel Share in lieu of a final dividend for the financial year 2013/14.