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How Preussag Became Tui: Kissing Too Many Toads Can Make You a Toad


Ingolf Dittmann


Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Erasmus Research Institute of Management (ERIM); European Corporate Governance Institute (ECGI)

Ernst G. Maug


University of Mannheim - Department of Business Administration and Finance; European Corporate Governance Institute (ECGI)

Christoph Schneider


University of Mannheim - Department of Business Administration and Finance; The Stephen M. Ross School of Business at the University of Michigan


ECGI - Finance Working Paper No. 58/2004
Financial Management, Vol. 37, Issue 3, pp. 571-598, 2008

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.

Number of Pages in PDF File: 52

Keywords: Corporate Governance, Large shareholders, Germany, Diversification, Mergers and Acquisitions

JEL Classification: G32, G34

Accepted Paper Series


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Date posted: November 15, 2004 ; Last revised: May 6, 2009

Suggested Citation

Dittmann, Ingolf, Maug, Ernst G. and Schneider, Christoph, How Preussag Became Tui: Kissing Too Many Toads Can Make You a Toad. ECGI - Finance Working Paper No. 58/2004; Financial Management, Vol. 37, Issue 3, pp. 571-598, 2008. Available at SSRN: http://ssrn.com/abstract=620243 or http://dx.doi.org/10.2139/ssrn.620243

Contact Information

Ingolf Dittmann (Contact Author)
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 4081283 (Phone)
+31 10 4089165 (Fax)
HOME PAGE: http://people.few.eur.nl/dittmann/
Tinbergen Institute
P.O. Box 1738
3000 DR Rotterdam
Netherlands
Erasmus Research Institute of Management (ERIM)
P.O. Box 1738
3000 DR Rotterdam
Netherlands
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Ernst G. Maug
University of Mannheim - Department of Business Administration and Finance ( email )
D-68131 Mannheim
Germany
HOME PAGE: http://cf.bwl.uni-mannheim.de
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Christoph Schneider
University of Mannheim - Department of Business Administration and Finance ( email )
D-68131 Mannheim
Germany
(+49) 621 181 1949 (Phone)
(+49) 621 181 1980 (Fax)
HOME PAGE: http://cf.bwl.uni-mannheim.de
The Stephen M. Ross School of Business at the University of Michigan ( email )
701 Tappan Street
Ann Arbor, MI 48109
United States
Feedback to SSRN (Beta)


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