TUI(Tourist Union International)/Hapag Lloyd - Fredriksen battle: Tor-Olav Trøim's speech at the TUI Annual Shareholder Meeting on May 7, 2008. Explains well the situation.
Trøim is "the right hand" of Fredriksen. JF could not participate the meeting due to an operation (he's all right now).
Redetext von Tor Olav Trøim - Vertreter von John Fredriksen auf der Hauptversammlung der TUI AG am 7.5.2008
Limassol, Zypern (ots) - Sehr geehrter Herr Vorsitzender, liebe Mitaktionäre, ich freue mich, hier heute zu Ihnen sprechen und mich Ihnen persönlich vorstellen zu dürfen. Mein Name ist Tor Olav Trøim und ich arbeite seit vielen Jahren eng mit John Fredriksen zusammen. Ich spreche hier für den mit einem Anteil von rund 11,7 Prozent größten Aktionär der TUI, Monteray Enterprises Ltd. sowie John Fredriksen. Außerdem kandidiere ich für einen Sitz im Aufsichtsrat. I hope you will excuse that my German is not good enough to do this entire speech in the language. I will therefore continue in English. Mrs. [Heeßel or Seidel] will be so kind to translate my comments. I unfortunately have to excuse Mr. Fredriksen, who was planning to be here today but at short notice had to undergo a medical procedure. Mr. Fredriksen regrets not being here today as he would have liked to introduce himself to you in person. We expect that this will not be the last shareholders' meeting. I am sure you will have a chance to meet him in person soon. I promise that he will be here next time.
Today is an important day for TUI's future. It is not about personalities and egos, it is about the future of what was one of Germany's most important companies. The company which during the last 14 years has suffered from weak management and a lack of clear leadership. It is a company that during the last 14 years has given shareholders a return of less than 4% per annum and thereby the worst performance in the Dax Index. I represent Monteray Enterprises, a company owned by John Fredriksen. Monteray have invested close to $1 billion in this company and are today TUI's largest shareholder. We are presently not represented on the Company's supervisory board. With our investment we have shown our belief in this company, much more so than TUI's management who, according to the last Annual Report, all together own 2,750 shares, less than an EUR50,000 investment. Last year they were however awarded EUR10 milllion in performance related remuneration, an amount more than 2 X their fixed salary. That was the year the Annual Report described as a successful year. Successful? The return on book equity was less than 4% significantly under bank deposit rate. Is that what the managment calls a success? We are not troublemakers. We are not a hedge fund. We are not a private equity company. (PAUSE). We are fellow shareholders. Shareholders who want to build the company and create long-term value for shareholders and secure jobs for the people at TUI.
We started this venture with friendly intentions. We had several meetings with management and thought the intention was to focus and grow the container business and ultimately sell out of tourism. Two months into our meetings the strategy had changed again. It was now 2 pillars; tourism and containers. A further 2 months later, after Frenzel met Mr Mordashov, TUI was defined as a 1 pillar tourism company. Such a lack of strategic direction about what kind of business the shareholders invest in forced us to be more active. We began investing in TUI shares in 2007 because we saw and continue to see Hapag-Lloyd as the key value driver of TUI Group. Hapag-Lloyd is a business with an excellent management, with an important strategic position in the European container shipping market, outstanding development potential and a very good brand name.
Why have we taken our recent initiatives and why am I here today? Consider this: had you invested the equivalent of EUR1.000 in TUI shares when Dr. Frenzel became CEO in 1994 your share price and dividend return would have left you with a value of EUR970 until on 22 January of this year, when we decided to take initiative. Had you done the same with the DAX, you would have had approx. EUR2.900 on 22 January. Had you invested in shares of John Fredriksen's Frontline, the oil tanker company, in 1997 when it was introduced to the Oslo stock exchange, you would now have more than EUR23,000. In the year we have invested in TUI our investment has gone down by approximately 10%. That is in the year the Annual Report called successful. If you had invested the same amount of money into our two main public companies, Seadrill and Frontline, the $1 billion investment would today have grown to approximately 50% including dividends. Looking at the performance since Dr. Krumnow became chairman of the supervisory board on 11 November 2004, EUR1,000 invested in TUI would have decreased to approx. EUR960 by the time we took our initiative whereas such investment in the DAX would have increased to ca. EUR1,650. There is a consistent track record of underperformance. You will have noted that this is not only our personal observation but is well documented by other independent observers: equity analysts, academics, financial journalists, etc.
Between the summer of 2007, when we started to invest, and 22 January 2008, the TUI share price actually dropped by ca. 30%, underperforming the DAX significantly. At this point, and after learning that TUI management was planning to merge Hapag-Lloyd into TUI, we felt we had to take the initiative. We made known to the company our opposition to the planned merger and subsequently, in March, we requested that TUI explore the separation of Hapag-Lloyd via a spin-off, as has been done successfully in a number of other prominent German companies, and which conceptually we consider to be the best way of separating shipping from tourism. We were therefore pleased to note that TUI in April finally announced that it will abandon its obsolete "two-pillar-strategy" and effect the value-maximizing separation of Hapag-Lloyd. However, we strongly fear, that this apparently positive development of TUI management's business strategy will prove no more than a temporary pause in the long and well documented track record of underperformance under the current management.
What truly concerns us the most, and this brings me back to why we are here today trying to bring positive change to the supervisory board, is that this track record was allowed to continue over many years apparently largely unchecked and unopposed by the supervisory board. This obvious failure of TUI's current corporate governance regime is in our view directly related to two unique features of TUI's corporate governance:
Firstly, a number of supervisory board members appear to be "hand-picked" by the management based on their support for Dr. Frenzel. Let me remind you of events last week, when Dr. Vranitzky resigned from the supervisory board and was replaced with Mr. Yakushev, a representative of S-Group, the second largest shareholder of TUI. We do welcome Mr. Yakushev as a commercially minded shareholder representative. However, this appointment of a representative of a shareholder who previously has publicly declared his support for management, was made upon the initiative of TUI's management by court order. We have reason to believe that the S-Group, made a commitment against our motion for change in return for a board seat and a commercial deal around tourism. All this happened less than a week before we all as shareholders could have voted on such matter, given that we had placed Dr. Vranitzky's replacement onto the agenda. Thus far we were of the understanding that it's the shareholders' privilege to appoint the shareholders' representatives on the supervisory board. We, and a number of you have told us that you agree with our view, consider this a violation of shareholder democracy.
One of TUI's major shareholders said in the Financial Times yesterday that the appointment of Mr Yakushev after finalisation of the annual meeting agenda is "like spitting in the owners' faces." Another case of hand-picking the supervisory board, I am sure you will agree. You get no control in a company if the people who are meant to be controlled pick their own controllers. We have noted that management, after the Vranitzky/Yakushev swap, has tried to declare votes which were cast ahead of this happening as invalid. It just shows how tricky this process has become. The management have through their own action put votes cast at risk of being invalid even without the shareholders themselves knowing about it. At the same time management appears to have spent a lot of time trying to gather support against our proposed motion to modify the supervisory board. They have spent time and money soliciting shareholder support but they have not spent sufficient time on dealing with Hapag-Lloyd.
Secondly, there appear to be conflicts of interest among several of the current TUI supervisory board members entertaining apparently profitable business relationships with the company's travel division. In order to look into the affiliated party business of among others 3 of the people sitting on the board we have read with great interest the Annual Report pages 227-228. There is no material information given in that chapter about what kind of business dealings the Riu family or any of the related party board members have with the company. When the votes from this shareholder meeting will be announced this afternoon, remember the following fact. 76.6 million shares or approximately 30,5 % of the shares are owned by groups who have direct business relationships with the company.
S-Group: 25.2 million shares, 10.03% * Vladimir Yakushev on the board) * Travel JV for the Russian market RIU Group: 12.8 million shares, 5.08% * Carmen Riu Güell on the board * JV partner for TUI hotels business Teck Capital Mgmt (Morocco): 12.6 million shares, 5.0% * Common travel interests in Morocco Caja de Ahorros del Mediterrâneo: 12.6 million shares, 5.0% * Roberto López Abad on the board * Caja reportedly holds a stake in leading Spanish hotel group Sol Melia Hamed El Chiaty: 7.6 million shares, 3.0% * Owner of TravCo * leading figure in Egyptian travel sector * TUI allegedly has exclusive contract with TravCo for operating arriving guests in Egypt through Travco, also filling bed capacities in Iberotels (owned by El Chiaty, TUI holds minority share) Fiesta Hotels and Resorts: 6.0 million shares, 2.4% * Dr. h.c. Abel Matutes Juan on the board * Hotels operator in Spain
These people have more effective ways to make money than owning shares in TUI. These people are effectively paid off by the management with separate deals to support the existing management. The independent shareholders paying the price for this. Monteray want to investigate these deals, we are not at all happy with the disclosure in the annual report and will most likely ask for these relationship to investigate on a separate basis.
However remember the number x million shares ...Deduct that from the votes the other side will get tonight and you will find out what kind of support the existing regime have from people who have invested in this company on a normal basis. We don't think this is fair. This is almost like a bought election. Bought with the Companys money.
Dear Fellow Shareholders, for a value oriented shareholder and investor, this status of corporate governance is simply unacceptable. We are dedicated and determined to bring to the supervisory board of TUI and the company's corporate governance as a whole a culture of performance, effectiveness and independence.
As a consequence, we have requested an amendment of the agenda for today's general meeting proposing the removal of supervisory board chairman Dr. Krumnow as well as board member Dr. Vranitzky and to elect Mr. John Fredriksen and myself as representatives of TUI's largest shareholder to the company's supervisory board. In our view, in order to bring positive change to TUI's corporate governance one should start from the top and replace the chairman of the supervisory board who has been in charge of supervising the management over the last years and who has apparently tolerated continued underperformance.
We are not against Mr Krumnow as a person. I have never met him and he might be a nice person. However, he is ultimately responsible for the lack of performance in this company. Therefore he has to go. Instead, we would wish for the supervisory board to elect as its chairman a senior German business leader of unquestionable standing who brings substantial experience in leading companies at the executive and supervisory board level.
People have asked us why we have elected to vote against Mr Krumnow and not asked to remove Dr Frenzel. The reason for that is simple. The shareholders elect the Supervisory Board. The Supervisory Board controls, evaluates and hires the Chief Executive. It is not good corporate governance for us as a major shareholder to get involved in the day to day management. However, we have had the right to influence and set in place the people who have this role.
What do we stand for? In many years in business, John Fredriksen and myself have been involved in the formation and development of more than a dozen highly successful publicly quoted companies, all of which have grown into leading players in their respective markets and have created significant value for all their shareholders. Unlike some observers have said about TUI management, we are not into destroying the value or stripping or shrinking a company. We have during the last 13 years built a company which today employs more than 20,000 people and we have given billions of euros back to shareholders in share price development and dividends. We have done it with the support of some of the best financial institutions in the world, like Fidelity, Wellington, Templeton and the Capital Group. Our well documented actions towards changes in TUI's business strategy since 22nd January 2008 have made a strong contribution to an almost 40% improvement in TUI's stock price over the past three months. You may take this as evidence of our strong commitment to the creation of value for all TUI shareholders.
In addition, we have longstanding experience and expertise in the shipping industry, which we believe has currently no match within the supervisory board of TUI and which would be a significant benefit in the process of separating Hapag-Lloyd.
Finally, unlike other representatives in the current supervisory board, both Mr. Fredriksen and I are free of conflicts of interest. Neither of us holds significant investments in other container shipping companies, nor have we separate business dealings with TUI or intend to acquire Hapag Lloyd from TUI. We are confident that our proposal is convincing and in the best interest of TUI. We have received a very positive response to our proposals in the last weeks from many investors. You may have noted that ISS/RiskMetrics, the leading proxy advisory firm, has published a detailed analysis, recommending its clients, which include the world's largest institutional investors, to support our proposals.
Dear Fellow Shareholders, We are not here to make noise. We are here to build long-term value and have during the last couple of days done our utmost to try and find a solution which could be to the benefit of all parties. In this spirit, and in the interest of the company, we are proposing an amicable solution which in our view should be acceptable to all parties involved. We from our side would limit our request for representation in TUI's supervisory board in this shareholders' meeting to one membership rather than the two memberships we had initially requested.
We would thus not take any action to revoke the recently appointed supervisory board member Mr. Yakushev, since we believe that S-Group as second largest shareholder of TUI should also be represented in the supervisory board. In this context, we have taken note that both the management and the supervisory board of TUI have stated that they would welcome representation of Mr. Fredriksen in the supervisory board. We do, however, continue to insist on the most important element of our request which is the revocation of the chairman of the supervisory board. The chairman, as a result of his function, in our view, must take responsibility for the development of the company. I therefore strongly apply to you as shareholders of TUI to support our request to revoke Dr. Krumnow's appointment and to appoint me as a member of the supervisory board. On this basis and with a view to achieving an amicable outcome, we request that concerning agenda item 11 "Revocation of the appointment of the supervisory board members elected by the general meeting Dr. Jürgen Krumnow and Dr. Franz Vranitzky.", the general meeting resolves as follows: "The appointment to the supervisory board of TUI AG of Dr. Jürgen Krumnow is revoked with effect as of the closure of this general meeting."
We further request that concerning agenda item 12 "Election of new supervisory board members for the remaining term of the revoked members of the supervisory board.", the general meeting resolves as follows: "Mr Tor Olav Trøim, manager, London, United Kingdom, is elected new member to the supervisory board for the remaining term of the revoked member of the supervisory board with effect as of the closure of this general meeting." For further information in accordance with the German Stock Corporation Act regarding my memberships in boards of a comparable nature, I may refer you to the written information handed out to the chairman of this general meeting and also made available as hard copy [at the document desk over there].
To sum up, we have given out a sheet which simplifies our messages. The sheet describes TUI's current credentials in 5 points.
1. Lack of a clear and consistent strategy
2. Wrong management focus: Self preservation rather than value creation.
3. Weak, ineffective corporate governance
4. Limited shipping expertise in the board at time of critical need.
5. Unsatisfactory financial results and share price performance.
Monteray is today the Company's largest shareholder and that is a strong enough argument to appoint us to the Board. However, I will run through the 5 main arguments for putting us on the Board.
1. Have built and are major shareholders in 10 public companies (NYSE, NASDAQ and OSE) all with clear focus and strategy
2. Have during the last 13 years built companies which today employ more than 20,000 people
3. Substantial shipping experience including container shipping
4. No conflicts of interest
5. Track record of financial performance and value creation for the benefit of all shareholders
- Frontline: From US $100 million to US $4 billion in 11 years + additional US$ 8 billion in dividend
- Seadrill: From US $200 million to US $ 11 billion in three years.
The choice is simple. You either support existing management in their fight against the Company's largest shareholder or you vote for a change. A change much needed in this company. Es ist Zeit für Veränderung!
