TUI bows to pressure by agreeing to Hapag-Lloyd breakup

German tourism and shipping conglomerate TUI AG has yielded to shareholder pressure by deciding to separate its Hapag-Lloyd container shipping unit from the group.

All options including a spinoff, merger or divestment as a single entity are going to be examined, TUI said in a statement on Monday after the supervisory board held its regular meeting to approve the group's 2007 financial statements. 

In this context, the interests of our shareholders, bondholders and employees are to be taken into account in an appropriate manner. At the same time, the executive board has been given the mandate to identify further growth options for the expansion of the tourism business.

TUI said it will present more information about its plans for the world's fifth-largest container operator during its annual briefing Tuesday.

Earlier this month TUI reported preliminary annual earnings before interest, taxes, depreciation and amortization (EBITA) for its shipping division -- comprising both container and cruise operations -- of 197 million euros ($288 million), up 121 percent year on year despite a 1 percent dip in revenue of 6.2 billion euros ($9.05 billion).

Norwegian shipping billionaire John Fredriksen, who is understood to have raised his stake in TUI to about 10 percent, and U.S. investor Guy Wyser-Pratte, who bought 1 percent of the group late last year, have been urging other shareholders to resist TUI Chief Executive Officer Michael Frenzel's plan to protect Hapag-Lloyd from a hostile takeover by merging it within the holding company, and want to see Hapag-Lloyd broken up to maximize value.

It's a step in the right direction. But only a step, Wyser-Pratte told Shippers' NewsWire. The right way to separate the two lines of business of shipping and tourism is probably a sale of Hapag-Lloyd. The way to sell it when you have as many bidders as you have in this situation is to conduct an auction. You don't suppress potential bidders by trying to negotiate in secret with one local buyer only, he said referring to the news that Hamburg bank MM Warburg is reportedly forming an investor group including German national Klaus-Michael Kuehne, controller of Swiss logistics company Kuehne + Nagel, who are said to want to keep Hapag-Lloyd as an independent shipping company.

That's fine lads but pay the price! said Wyser-Pratte. The U.S. activist shareholder said the right price for Hapag-Lloyd right now is about $7 billion.

Another potential outcome that would please those wanting the container line to stay in German hands would be for the Oetker family, owners of north/south specialist carrier Hamburg S, to revive an old idea and step in for Hapag-Lloyd.

Frenzel was said to be engineering a plan earlier this year to merge Hapag-Lloyd with APL, the container line owned by Singapore's Neptune Orient Line, which in turn is majority owned by the Singapore government’s investment company Temasek Holdings. That plan is said to be dead in the water, but any number of major container lines, including APL, would certainly be interested in buying Hapag-Lloyd to gain considerable market share overnight.

The last bout of significant consolidation in the container shipping industry occurred at the end of 2005 when A.P. Moller - Maersk bought Anglo-Dutch carrier P&O Nedlloyd, and Hapag-Lloyd purchased Anglo-Canadian line CP Ships. Both deals were troublesome in terms of integration and were factors in the Danish and German carrier's suffering heavy losses in 2006.