TUI sells Hapag-Lloyd to Hamburg investors, retains stake

German tourism company TUI AG said Sunday its supervisory board has approved the sale of its container shipping subsidiary Hapag-Lloyd AG to a Hamburg-based consortium of investors for 4.45 billion euro ($5.9 billion.)But TUI said it would retain a one-third interest in Hapag-Lloyd, which will be purchased for 700 million euros ($939 million). TUI also stands to make another 250 million euros ($335 million) "earn out" if Hapag-Lloyd reaches certain budget targets in 2009-2011. 

Despite an adverse environment, the price we have achieved for container shipping reflects its fair value even under normal market conditions, said Michael Frenzel, chief executive officer of TUI. Selling only two-thirds of Hapag-Lloyd has made this price possible. In addition, our entrepreneurial stake will offer us the opportunity to benefit from the future earnings potential.

Hapag-Lloyd has a fleet of 136 owned and chartered ships with total capacity of 503,656 TEUs, about 3.9 percent of the world fleet, making it the fifth-largest container liner company in the world after Maersk, Mediterranean Shipping Co., CMA CGM and Evergreen, according to the information service AXS-Alphaliner. It also has 14 ships on order with capacity totaling 122,500 TEUs. 

The investor group, called Albert Ballin KG after the turn-of-the-century Hamburg ship owner and general director of Hamburg America Line, reportedly includes the investment bank M.M. Warburg, Klaus-Michael Kuehne, who is also head of Swiss logistics company Kuehne + Nagel, the city of Hamburg, the bank HSH Nordbank, and insurance companies Signal Iduna and Hanse Merkur.

Neptune Orient Lines Ltd., Singapore-based parent of container carrier APL, had also bid for Hapag-Lloyd, but on Friday, it said it was no longer engaged in the bidding process for the sale of the Hapag-Lloyd container shipping business.

Frenzel said the Hamburg consortium submitted the better offer and had won in a fair bidding process.

Hapag-Lloyd said a neutral investment bank not involved in this sale process has confirmed in a fairness opinion that a fair sale price has been achieved and that the decision was exclusively based on value criteria.

The sale to the Hamburg-led consortium is a positive outcome for the shareholders of TUI AG, for Hapag-Lloyd and its employees and not least for Hamburg and for Germany, Frenzel said. There seemed to be strong support, particularly in the Hamburg shipping community and among some politicians, for Hapag-Lloyd to remain in German hands.

TUI had decided to divest itself of Hapag Lloyd in March.

In a phone call with stock analysts on Monday, Rainer Feuerhake, chief financial officer of TUI AG, said the company had decided on a trade sale of Hapag-Lloyd as the best option because there was an absence of merger partner options, and an initial public offering or spin-off was not possible because of market conditions.

TUI AG will be entitled to sell shares in Hapag-Lloyd, and the Hamburg consortium will have a pre-emption right. Moreover, TUI has a right of first offer to sell the shares to the Hamburg-based consortium. The first exercise date for this option will be Jan. 1, 2012. 

TUI said Michael Behrendt was stepping down from the TUI AG executive board with immediate effect and would remain CEO of Hapag-Lloyd AG. Frenzel will remain head of the Supervisory Board of Hapag-Lloyd AG.

The deal will have to be approved by antitrust authorities.

Shareholders of TUI AG are to receive an appropriate special dividend following the completion of the sale.