TUI Travel Profits Up 21%

Europe’s largest tour operator by revenue, TUI Travel looks to be on track to meet its profit growth for the year after posting a 21% increase in profits in its third quarter. The growth was driven by sales of holiday that are higher margin.

The company based in Britain is in talks at this time with its owner of 55% TUI AG based in Germany, regarding a merger worth as much as 4.4 million pounds. The merger would create the biggest leisure tourism entity.

The two companies have until September 19 to make an announcement of a formal proposal to merge.

TUI Travel has targeted growth of 7% to 10% in operating profit on a basis of constant currency for its fiscal year that ends September 30. However, rules of takeovers in Britain prevented the company from reaffirming its guidance Friday.

CEO Peter Long said he could not comment on the company forecast for the fiscal year since they were in an official offer period.

He assured investors that no business reason existed for not having guidance included in their financial earnings report.

TUI and TUI Travel announced a merger plan in a deal involving only stock and without any premium this past June. Investors have long expected a deal between the two since 2007 upon the creation of TUI Travel, from a merger of First Choice in Britain and TUI AG’s travel business.

The two firms last held talks on a merger in 2013 but that deal collapsed when TUI AG said it would not make sense for an offer given the current share prices.

Analysts said the present merger plan was not attractive to an independent shareholder of TUI Travel due to the underperformance of the share price of TUI AG, and that means either a more favorable deal would emerge or the whole merger would be called off.

Shares of TUI AG are down 14% since one day prior to the merger plans being announced.

TUI AG stock has underperformed that of TUI Travel, which is trading at 9% lower.

The strong performance by TUI Travel was driven due to its unique holiday concept.

Higher earnings holidays have accounted for more than 71% of the summer bookings in 2014 and have allowed TUI Travel to separate itself from other competitors who sell more holidays that are commodity like.

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