Why Russian oligarch Mordashov cut his stake in Europe’s biggest tour operator

Alexei Mordashov

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At the beginning of July 2022, TUI Group, one of the world’s largest tour operators, obtained two new shareholders. A relatively small number of shares were purchased by Sebastian Ebel, who will become the company’s new CEO in October, and Sybille Reiss, who has been a member of the board since July 1, 2021.

Mordashov, on the contrary, reduced his stake in TUI. Do the recent changes mean he’s losing influence over the company? NV Business went into detail.

tourist behemoth

TUI is one of the largest travel agencies in the world, with its own planes and hotels. At the end of 2019, on the eve of the introduction of quarantine restrictions and transport blockages, the company was serving 21 million customers. And that’s not counting joint ventures in Canada and Russia. The company’s turnover at the time was almost 19 billion euros, but last year fell to 4.7 billion euros. With most lockdown restrictions lifted, the situation in the tourism and transport sectors is improving. In the first half of 2022, the company achieved nearly 4.5 billion euros in revenue, which is almost the same as in the whole of 2021.

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The TUI (Touristik Union International) brand itself appeared in 2012. Previously, the company operated under the name Preussag AG. It is an industrial conglomerate that emerged on October 9, 1923 as the Prussian Mining and Metallurgical Corporation (PBHAG). Then, under the aegis of a joint-stock company, the state assets of Prussia were united: coal mines, metallurgical works, salt mines, amber production and auxiliary companies. In 1997, Preussag divested its manufacturing assets and focused on the leisure industry.

Ironically, a Russian manufacturing magnate ended up being its largest shareholder.

Russian shareholder

At the start of 2022, the German company’s largest private shareholder was Russian oligarch Alexei Mordashov, who made his fortune in the steel company Severstal. Mordashov began to buy back TUI shares in the late 2000s. As a result, he got his hands on around 34% of TUI Group shares through Unifirm Limited (Cyprus) and even served as a member of the tour operator’s supervisory board.

However, after the full-scale Russian invasion of UkraineEU sanctions were imposed personally on Mordashov on February 28. On March 2, he left the supervisory board of TUI AG, the tour operator’s management company.

“According to German law, 25% + 1 share is a blocking stake that allows key company decisions to be vetoed,” Julian Khorunzhyi, senior partner at law firm Ario, told NV Business.

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“But, if we talk specifically about the situation with Mordashov, then according to the TUI Group’s press release, as long as European sanctions and not only him are applied, he has no right to sell his shares, does not has no voting rights and is not entitled to receive economic benefits from the ownership of shares.

Despite this, in mid-March, information emerged about the oligarch’s attempt to indirectly sell a 29.9% stake in TUI AG to another company – Ondero Limited registered in the British Virgin Islands. In theory, this would make it possible to exempt part of the actions from European sanctions. The agreement was signed on February 28, the day sanctions were imposed on the oligarch. Only three weeks later it became known that the beneficial owner of Ondero Limited is Marina Mordashova, the wife of the oligarch, against whom US sanctions have already been imposed. Germany blocked this agreement.

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But 4.1% of TUI shares were transferred to Severgroup LLC (Russia), which is personally owned by Mordashov, so sanctions apply in this case, Khorunzhyi claims.

But since July 1, the share capital structure of TUI Group has changed.

Month of change

NV Business has previously detailed how Alexei Mordashov is hiding his tourism assets from sanctions. However, not everything seems to be going as planned.

In the latest structure of the largest owners of the TUI Group, the total share of companies controlled by the structures of the Russian oligarch and his family fell from 34% to 30.9%. The share of private and institutional investors increased to 66.9%. Thus, Mordashov now owns less than a third of the operator’s shares.

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The changes came as a result of the additional issuance of shares by the German company. On May 17, TUI AG announced its decision to increase its authorized capital by approximately 10%. For this purpose, approximately 162,300 new shares were issued, which were offered to institutional investors at a price of EUR 2.62 each. This raised 425 million euros.

“Additional issue may well be a relatively ‘legal’ tool to reduce the impact of sanctions and the ‘demonstrative’ removal of the relevant asset from the scope of sanctions,” said Timur Bondaryev, lawyer, managing partner of JSC Arzinger . , to NV Business. He adds that much depends on local legislation which establishes the appropriate penalty restrictions.

Who got the new shares? Investment and advisory firms Black Rock, GLG Partners, JPMorgan Chase & Co. announced stock developments in June. The list may also include other new shareholders whose participation in the authorized capital is small and does not require mandatory publicity.

The actions of issuing additional shares and diluting the shares of existing shareholders can theoretically be aimed at reducing the risk of sanctions.

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“The fewer people sanctioned and the less they control the structure of the company, the less such a company has public and reputational risks, which, in turn, affects the value of the shares,” says Khorunzhyi.

But TUI Group is a public company listed on the London and German stock exchanges, and Mordashov still holds a blocking stake in its shares. Therefore, Khorunzhyi does not exclude that the purpose of the additional issue was indeed to raise funds. Moreover, the company has found a use for them.

To change direction

TUI AG announced in May its intention to repay more than 1.1 billion euros in state aid received from the German government during the 2020-2021 coronavirus crisis. At that time, air transport and tourism were among the most affected sectors of the global economy.

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As of June 30, the company had paid 725 million euros (including interest) to the Economic Stabilization Fund (FSM) and reduced the outstanding credit lines of KfW bank from 2.4 to 2.1 billion euros. . The money was raised through the placement of shares and from the company’s working capital.

In addition to the credit lines mentioned, the company still owes the State 479 million euros, convertible into 479 million shares of TUI AG (loan from the FSM and bonds). If that happens, Mordashov’s share will decline further.

The tour operator explains its financial activity as due to the revival of the tourist market in Europe and in the world.

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It should be noted that at the same time the company is experiencing significant management changes. On June 24, current CEO Friedrich Joussen, who became head of the company under Mordashov, announced his intention to exercise his right to resign early. European travel media noted that the announcement came as a surprise. On that day, the shares of the tour operator even fell in price. Joussen ran TUI for around 10 years, and it was under his leadership that in 2014 the German and UK tourism businesses that operated under the TUI brand were merged into a single company. Joussen explained his decision by the fact that the company has overcome the existential crisis associated with the challenges of COVID-19. According to Corporate Watch, even in the coronavirus-hit year 2020, he earned just over 1.7 million euros (only 5% less than in 2019). He also had additional income – stock dividends received in the form of annual bonuses.

The aforementioned Sebastian Ebel, who is currently the company’s chief financial officer, will become his successor from October 1. This replacement will lead to several other changes in the direction of the tour operator.

But will the course to reduce the influence of Russian oligarch Alexei Mordashov continue?

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“Provided there is a thorough shareholders’ agreement establishing tools for joint control of the company, even a de jure insignificant stake in the share capital can have a fairly significant de facto influence of its owner on the strategic aspects of company and its operational activities,” emphasizes Bondaryev.

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