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

52 Pages Posted: 15 Nov 2004 Last revised: 6 May 2009

See all articles by Ingolf Dittmann

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 Business School; European Corporate Governance Institute (ECGI)

Christoph Schneider

Tilburg University - Department of Finance

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.

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

JEL Classification: G32, G34

Suggested Citation

Dittmann, Ingolf and 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: https://ssrn.com/abstract=620243 or http://dx.doi.org/10.2139/ssrn.620243

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 Business School ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181-1952 (Phone)

HOME PAGE: http://cf.bwl.uni-mannheim.de/de/people/maug/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Christoph Schneider

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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