How Preussag Became Tui: Kissing Too Many Toads Can Make You a Toad
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)
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
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, G34Accepted Paper Series
Date posted: November 15, 2004 ; Last revised: May 6, 2009
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