| 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. |