Tui is battling its own version of long Covid. The travel and leisure group has launched a fully underwritten and highly discounted €1.8bn rights issue. It will use the new capital to pay back German state aid and reduce debt. That will leave it on a sounder footing as summer travel plans heat up.
The fact that Tui needed to raise equity, again, was well-flagged. What may be more surprising is the discount that the group is offering. New shares will be priced at €5.55. The closing price on Thursday was €16. To raise €1.8bn, the group is issuing many more shares than exist at present: 328.9mn, on a current count of 178.5mn.
In theory, the discount makes no difference to existing shareholders. The value of the rights should compensate for the dilution. But it does make a difference, in this case.
Tui’s largest shareholder, with 30.1 per cent of the company, is sanctioned Russian oligarch Alexei Mordashov. He is not receiving rights and so will be heavily diluted, to 10.9 per cent. This reduces a source of uncertainty for Tui.
It also transfers value to the other shareholders. At Thursday’s closing price, Mordashov’s stake was worth €885mn, which is 30.9 per cent of its market value of €2.85bn. Absent any other change, the recapitalised Tui should be worth its market cap on Thursday plus the new money that is being put in, or €4.65bn. Mordashov’s newly diluted stake of 10.9 per cent is worth about €510mn The difference is to the benefit of the other shareholders.
The other constituency that benefits from the high discount is the consortium of underwriting banks. The bigger the discount, the likelier it is that the stock trades above the new issue price, and the less likely it is they will have to put up any money. Given the jitters in the market — and the tremors within banks themselves — getting stuck with unsold equity would be a bad look. Avoiding in-flight turbulence looks smart.
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