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Article Excerpt
OPERATOR: Good day, ladies and gentlemen, and welcome to today's sale of Hapag-Lloyd conference call from TUI AG. For your information, this conference is being recorded. At this time, I would like to turn the call over to your host today, Mr. Rainer Feuerhake. Please go ahead, sir.
RAINER FEUERHAKE, CFO, TUI AG: Yes, good morning, ladies and gentlemen. Very welcome to our today's conference call, which is up due to the sale of Hapag-Lloyd, which happened yesterday. My agenda for today will be to refer a little bit to the sales process and the outcome. I will refer to the impact on the Group financing and TUI AG financing structures. I will give a very short strategic outlook on TUI as a Leisure Group.
But let me first come to the process of separating Container Shipping from TUI AG. There was, on request of the Executive Board, an exit decision by the Supervisory Board taken in March 2008. The exit options being mentioned at that time was a trade sale, a possible merger or a spin-off.
Now, if I go back, we have always prioritized since the announcement in March that we would consider a trade sale as the best option with regard to shareholders' and stakeholders' interests, and execution possibility. My statement today on a merger is a merger would be impossible, mainly to the fact that I don't see the partner options. Additionally, a thinkable IPO is obviously impossible in the current market environment.
And the spin-off, which was a little bit a theoretical discussion whether it could work or not from the today's point of view, is absolutely impossible as it requires complete refinancing of the TUI lending facilities which, in the current market, for obvious reasons, is not available.
So, as an outcome, the trade sale is left and it brings me to the transaction highlights. The sale and purchase agreement has been signed yesterday. There is an entity value of EUR4.450b for 100% of the shares of Hapag-Lloyd AG.
The deal structure is set up in a way where TUI is selling, on the one hand, 100% of Hapag-Lloyd to an entity which has a nice name, BidCo. And, at the same time, TUI has acquired one-third of BidCo's shares. Albert Ballin Kommanditgesellschaft holds 66%, or two-thirds, of the -- the other two-thirds of the deal.
The deal components. It's a complete sale of Hapag-Lloyd AG with all the activities, which is the Container Line, including all the assets, the terminal participations of that company and related real estate, which mainly refers to major office buildings in Hamburg.
The timing of the deal. Having mentioned that the signing happened already, closing is expected to be available in January 2009. On Group level we do expect a gain on this disposal. This gain should deliver us something like EUR1b or so Group profit. This profit will only be realized at closing. This means that the account of 2008 will not show this profit. It can only be expected, as a consequence, in the first quarter, obviously, of 2009.
One of the major outcomes of this deal is a completely new defined net debt position of the TUI Group, where we will see a significant reduction of the net debt position through this deal by approximately EUR3.3b.
The deal structure we have shown here in a picture. The outcome is that TUI will remain with some share -- some important shareholder rights. As a 33% shareholder, TUI will keep the controlling interest in this business. There is an earn-out of EUR250m which will be available on top of the agreed entity value. This earn-out will become available on fulfillment of the three-years' budget. This means if the three-years' earnings of 2009, 2010 and 2011, cumulated, will exceed the budget numbers for these three years, TUI will have a gain of another EUR250m upon this deal.
We have a controlled exit. TUI can sell one-third, or the 33% participation, from January 2010 onwards. There is a pre-emption right of Albert Ballin KG on these shares. However, this does not forbid or make it impossible that, on mutual agreement, a further deal could happen or an earlier deal could happen.
And, finally, TUI holds a right of first offer to sell shares to Albert Ballin KG. This right is exercisable from January 1, 2012 onwards. And this ties somehow in the logic of the earn-out, obviously.
Now let me try to give you some details on the transaction. As I mentioned before, there is a total value of EUR4.450b mentioned in the offer which we have agreed on. And the breakdown of this offer is there is an -- there is a value of the equity and some cash equivalents coming along with them, totaling to EUR2.7b.
There is net debt in the Company in the amount of EUR1.3b. Other financial liabilities are valued at EUR75m, as much as pension liabilities in the same magnitude of EUR75m. There is real estate which will be sold separately, but is agreed upon price-wise, of EUR150m.
And there is a dividend available for TUI for the business year 2008 in the magnitude of EUR150m, which totals up to the entity value mentioned before. And, on top of that, there is the possible income out of the earn-out, which I have referred to just before, EUR250m.
Now, taking this as this as the basis of the deal, let me move to the impact on financing, both for the TUI Group and TUI AG. We see three outcomes.
The one is there is a significant reduction of net debt which refers to the TUI Group. That's a significant enhancement of liquid funds available as regards to TUI AG. Obviously, there will be an enhanced financial flexibility for further investments in the Tourism division for TUI as a Leisure Company. And there is room for appropriate consideration of shareholders besides that.
Going into details, first on the TUI Group, we expect net debt toward year end approximately around EUR3.9b. And there is a net impact on the disposal of Hapag-Lloyd as the deal is structured, with the final outcome that TUI will have a holding after that of one-third in the BidCo Company. And this impact is EUR3.3b. It ties out of EUR2b cash for equity and EUR1.3b net debt.
Seeing, as said, the [D&D] deconsolidated and cash coming in in the magnitude of EUR3.3b, the pro forma net debt after closing of shipping is about EUR0.6b. One could say once, in a -- at a later stage, the EUR700m which we will pay to invest one-third in BidCo will be repaid, the Group remains debt free.
Now, going to the liquidity position of TUI AG as the Holding Company of the Group, it ties -- turns out to become a little bit more differentiated. The current cash situation of TUI AG as it is standing in the books at -- in October, 2008, is approximately EUR1.2b. This is means -- this means we do have liquid funds at this moment of EUR1.2b.
We have to repay in eight weeks or so, in December, a convertible bond of EUR385m, let's say EUR400m here, which goes out of the liquid funds. But we will receive in the same time, from now onwards until closing, out of a pre-deal restructuring, fresh money of EUR900m.
This fresh money is the logic of the fact that TUI AG has sold ships and containers to Hapag-Lloyd and earned a shareholder loan out of -- as a consequence of that deal. Being the owner of the ships and containers, Hapag-Lloyd has started to negotiate with banks and financing institutes [for] the finance -- the financing for these assets, financing based on asset securitization, and the credit amounts are agreed.
This is certain funding and the payment starts now, the cashing in starts now. This money will come in and will be passed on from Hapag-Lloyd to TUI as a consequence to repay its current shareholder loan. This means we expect toward year end, after the repayment of the convertible bond but before selling Hapag-Lloyd, TUI AG in a cash position of around EUR1.7b.
Once again, then, the sale of Hapag-Lloyd will bring us cash proceeds out of the Shipping disposal, EUR2.7b, and cash-out to acquire the one-third participation in BidCo, EUR700m negatively, with the net of EUR2b. So this will leave TUI AG in the cash position, after disposal, at about EUR3.7b.
Now, if I compare this situation to the maturity profile of the long-term financing of TUI AG, you can see we have the EUR385m convertible is already taken care of in the pro formas we have done. We have to pay EUR600m in 2009 and the maturity, then, is well split over the next years. And I think it is very interesting to go through a pro forma long-term financing picture of TUI AG, which we have made for you.
Once again, we start with the EUR1.2b being available in TUI AG in October. There is EUR385m repayment of the convertible Ship financing, gives us cash-in of EUR900m. EUR2b net cash proceeds on the Shipping disposal, EUR2b. Then we have the repayments in 2009 and 2010. 2011, the shareholder loan of TTP will expire, so EUR1b cash will be available out of that shareholder loan for TUI AG.
Further repayments; we anticipate that EUR700m will come in as fresh money out of the then-to-be-expected, in a pro forma basis, the divestment of the remaining stake in Hapag-Lloyd. And, as a consequence, if you go through to -- through the matured pattern, including the hybrid which could be repaid in 2013, you can see that TUI AG, under this pro forma picture, would remain in the structure with a lot of cash being available after all the debts we have on our books today.
Now this is the pro forma picture. The actual life will be different. It has to be different for one restriction we have in our bonds. The restriction is that TUI AG has the choice to reinvest outcome of strategical divestments, which probably the sale of Hapag-Lloyd is, within 12 months or we have to repay all the bonds we have in our books. A repayment of the bonds would require a cash-out of EUR2b, so this would mean the cash availability will be shortened quite drastic.
Anyhow, so the decision is open, or here is the point, where the money is available for investments or repayments of the bonds. And this brings me to the point that I will take a short strategic outlook on TUI as a Leisure Group.
We will find ourselves after closing in a strong liquidity and long-term financing situation. This will give us the possibility and opportunities to invest for further expansion of the Tourism business of TUI AG. TUI AG's understanding is that we are a Leisure Group, being active in more business fields than tour operating only.
One of the options which will be explored in this connection is including a takeover of the minorities -- outstanding shares in TUI Travel PLC as an option. And we will carefully evaluate the positive and negative, possible negative points, out of such an investment which, finally, should bring us to a position as number one Leisure Company in Europe. Not only being the tour operator leader, but having a strong connection of very specific and strong Hotel and Resorts business which should enhance the position of our tour operators, develop Cruise activities and continue to build leading Specialists and Service and Incoming destination business.
This, ladies and gentlemen, shortly, and I hope precise enough, is an update what is the outcome of the Shipping deal which we have signed yesterday and we expect to close hopefully in January next year. And, of course, I'm happy to answer your questions after this. Thank you very much.
OPERATOR: Thank you, sir. (OPERATOR INSTRUCTIONS). We will now take our first question from Sonia Von Dorp from Societe Generale. Please go ahead.
SONIA VON DORP, ANALYST, SOCIETE GENERALE: Hi, good afternoon, and congratulations on closing this deal in such difficult conditions. I've got just a couple of questions on your comments earlier. During the presentation you mentioned a cash position; I think it's on...
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