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Dow Jones TUI Offers To Buy CP Ships
Hapag-Lloyd parent TUI Offers To Buy CP Ships For EUR1.7 Billion
August 22, 2005: 6:36 AM EDT

FRANKFURT -(Dow Jones)- German tourism and shipping company TUI AG said Sunday it has offered to buy CP Ships Limited for 1.7 billion, plus debt.

In a statement, TUI said the Canada and U.K.-based CP Ships is recommending its shareholders accept the offer.

CP Ships' net debt was 261 million at the end of the first half of 2005.

At an afternoon press conference, TUI Chief Executive Michael Frenzel said TUI did not see 2005 profit being affected by any deal. Should a CP Ships acquisition go through and the company combine with TUI's Hapag-Lloyd shipping division, TUI would expect to see higher earnings before interest and taxes starting in 2006, he said. Although TUI's net debt would increase, it could be reduced quickly through TUI's strong cash flow, he said.

Hannover-based TUI said it secured financing for a deal through Commerzbank, Royal Bank of Scotland and West LB, and also approved a capital hike of about 1 billion. TUI said the capital increase could still take place this year if the deal is approved, but further details weren't provided.

"This transaction will enhance growth opportunities over the longer term and will enhance value for TUI's shareholders through CP Ships' earnings potential and the realization of synergy potential..." Frenzel said.

"Our enlarged shipping business will be well positioned to take advantage of the strong long term growth dynamics in the container shipping industry," Frenzel continued. "This is both a compelling financial and strategic opportunity for us."

TUI said it sees potential synergies of 180 million a year, available by the third full year following the completion of the transaction. TUI sees integration costs of 100 million, occurring mostly during 2006.

The offer, at $21.50 per CP Ships share represents a 24.9% premium over the average share price of the last three months, and 9.7% over Friday's closing price. CP Ships closed up 3% at US$19.60, Friday.

TUI shares closed at 20.03 on Friday.

The move would raise Hapag-Lloyd from its current No. 13 position in terms of world freight volume to fifth largest. Together, Hapag-Lloyd and CP Ships, would operate 139 vessels with another 17 ordered. The combined company would be able to deliver a total capacity of 400,000 containers on more than 100 routes around the world.

For comparison, TUI said the combined group would have had revenues of about EUR5.7 billion and earnings before taxes, depreciation and amortization of 588 million in 2004.

TUI said it hopes to complete the deal in the fourth quarter, but noted CP Ships could still sell to another buyer. Marseilles-based CMA CGM and China Shipping Container Lines have also expressed interest in CP Ships.

The deal would mark a clear departure from TUI's heretofore concentration in tourism.

Landesbank Rheinland-Pfalz analyst Per-Ola Hellgren said he thinks a new concentration in shipping could help even out the company's cash flow. The tourism industry sees wide seasonal-based swings in revenue from quarter to quarter. Also, the price of oil, terrorism and avian flu could significantly affect TUI's tourism business at an instant's notice, he said.

Other analysts said they thought a deal could make sense.

"I think all in all it's a good idea," said an analyst who requested anonymity. "Future shipping rates may be affected somewhat with the number of new ships coming on line in the coming year, but when we speak to the companies directly involved, they say that it won't really be that dramatic of an effect. The demand side looks good," he said.

CP Ships operates in four main markets: trans-Atlantic; Australasia; Latin America and Asia. At the end of June, CP ships had 82 vessels. It transported a volume of 2.3 million containers in 2004.

CP Ships also owns Montreal Gateway Terminals, one of the largest marine container terminal facilities in Canada, TUI said.

TUI's Hapag-Lloyd unit owns 57 container ships and services the routes Europe- Asia; Europe-North America and North America-Asia. In 2004, Hapag-Lloyd transported 2.4 million containers. Hapag-Lloyd also operates four luxury cruise liners.

Company Web sites:

http://www.tui.com ; http://www.cpships.com

-By George Frey, Dow Jones Newswires; +49 69 29 725 505; george.frey@ dowjones.com

(Kirsten Bienk in Hamburg contributed to this report).

Corrected August 22, 2005 5:42 ET ( 9:42 GMT )

(END) Dow Jones Newswires  Top of page

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