How Preussag became TUI: Kissing too Many Toads Can Make You a Toad

Ingolf Dittmann, Ernst Maug and Christoph Schneider
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Ernst Maug: Chair for Corporate Finance, University of Mannheim and Sonderforschungsbereich 504, Postal: L9, 1-2, 68131 Mannheim
Christoph Schneider: Chair for Corporate Finance, University of Mannheim, Postal: L9, 1-2, 68131 Mannheim

No 07-38, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: In the period 1997-2004, Preussag, a diversified German conglomerate of old economy businesses, changed itself into TUI, a company focused almost entirely on tourism and logistics. This paper analyzes how this strategy was executed and how it contributed to Preussag’s underperformance of the stock market. We collect 417 announcements of acquisitions, financial disclosures and other news and disentangle the impact of different parts of the company’s strategy. We find that only the divestitures created value, that the strategy to invest in tourism destroyed value, and that the acquisition premiums Preussag paid were mostly unjustified. Bad luck like the events of September 11, 2001 cannot account for the poor performance of the stock. Poor management resulted from poor governance, combining a state-owned bank as the largest shareholder, board interlocks, and insufficient managerial incentives. The case shows how divestiture programs increase the liquid resources available to management beyond free operating cash flows and casts doubt on the positive governance role of institutional blockholders.

Pages: 52 pages
Date: 2007-06-26
New Economics Papers: this item is included in nep-tur
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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Working Paper: How Preussag became TUI: kissing too many toads can make you a toad (2007)
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