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FRANKFURT (Reuters) - The owners of TUI AG (TUIGn.DE) are discussing a deal to combine the German travel and tourism group with its majority-owned UK business TUI Travel TT.L in a bid to cut costs, three sources close to the companies and their shareholders said.
"The idea is to bring two companies that operate in same industry together. It is a story of synergies," a source close to one of the shareholders said. "It is being discussed right now that TUI Travel buys TUI AG," he added.
TUI AG owns 56.4 percent of TUI Travel, Europe's largest tour operator formed after the merger of TUI AG's travel business and British peer First Choice in 2007.
Another of the sources said it was not feasible for TUI AG to buy the 43.6 percent of TUI Travel it does not own because it lacks the funds and has little prospect of raising money on equity markets, given it trades at a hefty discount to peers.
"There is no way to get the maths to work (for that)," that source said, adding a "reverse takeover" by TUI Travel at 10 euros per TUI AG share would create value for all shareholders.
At 1345 GMT, TUI AG shares were up 5.2 percent at 7.83 euros. That compares with as much as 18 euros in 2008, before a global economic slowdown hit both tourism and shipping. TUI Travel's shares were up 0.6 percent at 283.2 pence.
TUI AG, TUI Travel Plc and TUI AG's main shareholders all declined to comment.
While TUI Travel comprises the whole tour operating business of the travel group, TUI AG also has hotels and luxury cruise operations as well as a stake in container shipper Hapag-Lloyd.
Ever since TUI AG in 2008 shifted its focus away from shipping and decided to sell a majority stake in Hapag-Lloyd HPLG.UL, its shareholders have been considering ideas of how to combine TUI AG and TUI Travel to reduce overhead costs and increase combined use of resources, such as hotels.
While TUI AG has said it wants to focus more on tourism, its management has always refused to comment publicly on options for TUI Travel.
Both groups currently have their own headquarters - in Hanover, Germany, and London respectively - and a merger could potentially yield over 500 million euros ($667 million) in synergies, two sources said.
Analysts, however, have calculated a much lower number closer to 100 million euros.
"The figure would be substantially lower for the hypothetical case that TUI Travel buys TUI AG," Commerzbank analyst Johannes Braun said.
TUI AG's two biggest shareholders, Russian tycoon Alexey Mordashov with 25 percent and Norwegian shipping magnate John Fredriksen on 15 percent, have lost millions on their investments in TUI AG, after building their stakes in 2008 and 2009 at a premium to today's share price.
Fredriksen is also TUI Travel's second-biggest shareholder with a 5.4 percent stake.
"The main TUI AG shareholders would effectively be swapping their shares for TUI Travel shares," one of the sources said, adding that technically TUI Travel would issue new shares, some of which would be bought by existing TUI AG shareholders, who would then sell their TUI AG shares to TUI Travel.
Both Mordashov and Fredriksen are lobbying for the plan, the sources said. But while some other shareholders have signalled support, many people at TUI AG oppose such a plan, fearing the German operations would be sidelined, the sources said.
Other options to boost ties between TUI AG and TUI Travel are seen as having little chance of success, the sources added.
Consultants McKinsey and Boston Consulting had worked out several strategies, including a "merger light" in which a newly created TUI SE would have served as holding company for TUI AG and TUI Travel, they said.
Separately, a plan for a sale of TUI Travel's Central European business - comprising Germany, Austria, Switzerland and Poland - to TUI AG as a first step towards a full merger had been sketched out.
"Both options would create negative synergies," one of the sources said, adding TUI AG's main shareholders would likely veto such plans.
Many details of the reverse takeover need to be hammered out, the sources said, adding that while initially a decision was expected for an end-December board meeting, no major developments were to be expected within the next few weeks.
Obstacles include what to do with carried-forward losses from TUI AG and legacy issues from its days as mining conglomerate Preussag.
Separately, other sources said TUI Travel was in talks with Airbus and Boeing about a plane order worth $6 billion at list prices to renew its fleet over the next decade.
($1 = 0.7492 euros)
Reporting by Arno Schuetze; additional reporting by Peter Maushagen and Rhys Jones; Editing by Mark Potter