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Speculation Over Travel Giant TUI's Future

Rumors have abounded recently that Europe's largest tourism group could be subject to a hostile takeover. This week, TUI announced it would publish second quarter figures earlier than originally planned.


CEO Michael Frenzel is fighting to protect TUI from unknown forces

Speculation over the German company's future has been rife since US investment bank Morgan Stanley announced in a newspaper advertisement that, since July 20, it held 10.1 percent of TUI's shares. Industry analysts have been pondering Morgen Stanley's intentions behind purchasing such a big share in an indebted German company.

Observers say the US bank's actions likely reflect one of two possible scenarios: either they're holding on to the stocks to pass them on to others as with hedge funds that employ a so-called short sale strategy, or a takeover is in the works. Most tend to think Morgan Stanley is banking on hedge funds and plan to sell shares they have been lent by prime brokers, who then buy the stocks when the share price falls. The broker then pays the hedge fund a commission that reflects the difference between the buying and selling price.

Blaming hedge funds

It wouldn't be the first time that hedge funds -- which by nature keep their activities secret -- had speculated with TUI shares. "TUI is one of the best-known short stories on the market," Sy Schlüter, manager of the hedge fund Copernicus, told the Süddeutsche Zeitung newspaper. Schlüter acknowledged that his fund had made money on short sales of TUI shares "because TUI's strategy doesn't bear fruit and we considered the share overvalued."

Alternatively, some say Morgen Stanley may be acquiring the shares on behalf of a financial or strategic investor planning to take over TUI. Publicly-owned German bank WestLB is anxious to sell its 31 percent stake in the tourism group.

Analyst Viktor Hund from Germany's BW Bank told the DPA news agency a take over of TUI was plausible. "TUI is certainly an interesting target," he said.

The threat looms that TUI could soon lose its place on the DAX share index of Germany's 30 largest companies and that the initial public offering planned for the group's lucrative logistics unit Hapag-Lloyd could be effected.

Damage control

With all the rumors circulating, TUI head Michael Frenzel has started engaging in damage control since initially responding that he "definitely" didn't know what the purpose was behind Morgen Stanley's actions. Earlier in the week, he pledged to resist any attempt by hostile investors to take over or break up the group.

"I certainly won't stand by passively while asset strippers get into TUI and break up the company," he said in an interview with Der Spiegel newsmagazine, adding that he was taking preventive measures which he would not specify.

In response to the group's currently volatile share price, a spokeswoman on Tuesday announced that TUI had decided to push ahead its report on second quarter earnings by a week to Thursday.

The TUI share price closed at €14.43 on the German stock exchange Tuesday, up 2.63 percent from the previous day.

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