Why Russian oligarch Mordashov cut his stake in Europe's largest tour operator

18 July, 12:11 PM
Alexei Mordashov (Photo:REUTERS/Sergei Karpukhin)

Alexei Mordashov (Photo:REUTERS/Sergei Karpukhin)

The German tour operator TUI Group changed its ownership structure in the space of a month. The stake of the Russian oligarch Alexei Mordashov and his family has decreased. But this is not the only significant change in the activities of the company, which has suffered reputational risks due to sanctions.

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 bought by Sebastian Ebel, who will become the new CEO of the company in October, and Sybille Reiss, who has been a member of the Board of Directors since July 1, 2021.

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Mordashov, on the contrary, reduced his stake in TUI. Do the recent changes mean that he is losing influence on the company? NV Business delved into the details.

Touristic behemoth

TUI is one of the largest travel agencies in the world, with its own aircraft and hotels. At the end of 2019, on the eve of the introduction of quarantine restrictions and transport lockdowns, the company served 21 million customers. And this is without taking into account joint ventures in Canada and Russia. The company's revenue at the time amounted to almost EUR 19 billion, but last year fell to EUR 4.7 billion. Thanks to the removal of most lockdown restrictions, the situation in the tourism and transport sectors is improving. In the first half of 2022, the company received almost EUR 4.5 billion in revenue, which is almost the same as in the whole of 2021.

The TUI (Touristik Union International) brand itself appeared in 2012. Prior to this, 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 umbrella of a joint-stock company, the state assets of Prussia were united: coal mines, metallurgical plants, salt mines, amber production, and auxiliary companies. In 1997, Preussag divested itself of its manufacturing assets and focused on the leisure industry.

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

Russian shareholder

At the beginning of 2022, the largest private shareholder of the German company was the Russian oligarch Alexei Mordashov, who made his fortune at the steel company Severstal. Mordashov began buying up TUI shares at the end of the 2000s. As a result, he got hold of about 34% of the shares of TUI Group through Unifirm Limited (Cyprus) and was even a member of the supervisory board of the tour operator.

However, after the full-scale Russian invasion of Ukraine, EU sanctions were imposed personally against 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 makes it possible to veto key company decisions,” explained Julian Khorunzhyi, Senior Partner at Ario Law Firm, to NV Business.

“But, if we are talking specifically about the situation with Mordashov, then in accordance with the TUI Group press release, as long as European and not only sanctions are applied against him, he does not have the right to dispose of his shares, does not have the right to vote, and does not have the right 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 allow part of the shares to be exempted from EU sanctions. The agreement was signed on February 28, the day sanctions were imposed against 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 deal.

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

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

Month of change

NV Business has already detailed how Alexei Mordashov hides his tourism assets from sanctions. However, not everything seems to be going according to plan.

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 decreased 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.

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

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

Who got the new shares? Investment and consulting companies Black Rock, GLG Partners, JPMorgan Chase & Co. reported the change in their shares during June. The list may also include other new shareholders whose stake in the authorized capital is small and does not require mandatory disclosure.

Actions to issue additional shares and dilute the shares of existing shareholders can theoretically be aimed at reducing sanctions risks.

“The fewer sanctioned persons and the less their control in the corporate structure of the company, the less public and reputational risks such a company has, and this, in turn, affects the value of shares,” explains Khorunzhyi.

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

Change of course

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

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

In addition to the mentioned credit lines, the company still owes the state EUR 479 million, which are convertible into 479 million shares of TUI AG (loan from WSF and bonds). If this happens, then Mordashov's share will further decrease.

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

It is worth noting that in parallel the company is undergoing significant changes in management. On June 24, the current CEO Friedrich Joussen, who became the head of the company under Mordashov, announced his intention to exercise the 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 headed TUI for about 10 years, and it was under his leadership that in 2014 the German and British tourism businesses that worked 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-affected year of 2020, he earned just over EUR 1.7 million (only 5% less than in the successful 2019). He also had an additional income – dividends on shares received in the form of annual bonuses.

Sebastian Ebel, mentioned earlier, who is currently the company's CFO, will become his successor from October 1. This replacement will lead to several more changes in the management of the tour operator.

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

“Provided that there is a thorough shareholder agreement that establishes tools for joint control of the business, even a de-jure insignificant stake in the share capital can have a fairly large de-facto influence of its owner on the strategic aspects of the business and its operational activities,” stresses Bondaryev.

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