Further to the announcement of TUI Travel PLC’s interim results on 10 May 2011 which stated that TUI Travel intended to acquire the operating companies that lease and manage the Magic Life clubs, TUI Travel is pleased to announce that it has reached agreement with TUI AG and its subsidiary undertaking, Magic Life GMBH & Co KG, for the Group to acquire six separate operating companies through which Magic Life leases and manages 13 holiday clubs in Turkey, Tunisia, Egypt, Greece and Spain. This represents an important strategic step for the Group in securing the supply of an attractive, differentiated high quality hotel club product. The total consideration is €6 (€1 per operating company) in cash with the assumption of contingent debt of €10.5 million. Certain "Magic Life" trademarks and related rights are being acquired for a further €1 in cash.

The proposed acquisition is classified under the Listing Rules made by the UK Financial Services Authority as a "related party transaction" as TUI AG is classified as a "related party" as a substantial shareholder of TUI Travel. Consequently, the proposed acquisition is conditional upon and must be approved by TUI Travel's shareholders other than TUI AG and its affiliates before it is completed. Shareholder approval will be sought at a General Meeting expected to be held in the second half of June 2011.

Magic Life was founded in the early 1990s to provide an all–inclusive holiday product to the Austrian market. Magic Life is currently owned by TUI AG. Magic Life's business is well regarded as an important mid–range all–inclusive product, primarily for the German and Austrian source markets, and is an important part of the differentiated product offerings of the Group’s tour operators in these markets. It has 13 high quality holiday clubs in excellent locations in Turkey (6), Tunisia (3), Egypt (2), Greece (1) and Spain (1).

The business has recently generated an operating loss before taxation of €22.6 million (according to the ML Companies' latest statutory accounts for the year ended 30 September 2010) and has previously been highlighted by TUI AG as a non–core asset which may be subject to disposal. This reported loss, when adjusted for certain costs that will not form part of the acquired business (following the restructuring of Magic Life detailed below), is reduced to €10.3 million.

TUI Travel intends to acquire the operating companies which lease and manage the Magic Life holiday clubs (the ML Companies) for a de minimis consideration of €6, which reflects the current losses generated by the business. The operating companies are being acquired on the basis of balance sheets prepared in accordance with IFRS as at 31 October 2010, which showed gross assets of €46.4 million and net assets of €6.6 million including contingent debt of up to €10.5 million.

Prior to the proposed acquisition of the ML Companies by the Group, TUI AG will complete the restructuring of Magic Life such that Magic Life's Vienna head office costs, Magic Life's Istanbul office costs and the costs of its Sirene City property and its Nile cruise ship, the MS Regent, will not form part of the proposed transaction. This restructuring will reduce significantly the ongoing costs in the businesses that the Group will acquire. The Group will have no liability for closure of these offices/business and all employee termination costs will be with TUI AG and Magic Life. The functions being carried out by these offices will not need to be replicated by the Group once it has acquired the ML Companies.

Strategy for Magic Life
The proposed acquisition is consistent with TUI Travel’s strategy of securing exclusive access for the Group to an attractive, differentiated high–quality club product in good locations. In addition, it will enable the Group to (i) expand the product concept into new source markets and destinations, (ii) protect and grow the Group’s tour operator margins on sales of this product and (iii) improve the financial performance of the ML Companies through cost savings, improved occupancy, yield management and future expansion.

Differentiated products typically enjoy higher margins as a result of an earlier booking profile, higher customer satisfaction, more repeat bookings and an increased share of customers' total holiday spend due to the all– inclusive nature of the product. Increasing the mix of differentiated product is a key strategic imperative for the Group across its source markets. Currently, the differentiated product mix is c.38% with a target of 65% in the next 3–5 years.

The acquisition of the ML Companies will also enable the Group to grow the business by expanding the concept beyond its traditional source markets of Austria and Germany as well as expanding into new destinations. As part of an integrated tour operator with other club concepts it will also enable the Group to maximize the potential of each property by tailoring it to the needs of specific source market customers. For example, the Group intends to operate two of the Turkish clubs as a Holiday Village (the family concept from the UK source market) and a Blue Village (the family club concept from the Nordic source markets) rather than under the Magic Life brand. The Group believes that this approach will increase the yield and occupancy ratios of the clubs and maximise end–to–end profitability.

The ML Companies' product is an important source of profits for TUI Travel tour operators. The margins earned on this product are at the upper end of the range of margins achieved from other product sales in the same territories. By acquiring the ML Companies the Group protects an important source of profits for its tour operators.

TUI Travel's Board believes that the above opportunities, along with other planned operational improvements, will enable the ML Companies to achieve at least a break–even result in 2012 and growth thereafter. TUI Travel expects the transaction to have a positive impact on underlying operating profit in the second half of 2011.