TUI AG shares plummeted in early trading Wednesday after the German tourism group ruled out plans to merge with its UK-listed TUI Travel subsidiary.

Cost-saving merger plans were dropped as TUI said it did not intend to make an offer for TUI Travel.

TUI Travel is Europe's largest tour operator, formed by the merger of First Choice Holidays and the travel division of TUI in 2007.

TUI currently owns more than half of the company and was said to have suggested merging the two firms. However, it failed to make it off the drawing board.

"This decision is based on the assessment that a share-based transaction at current exchange ratios is not in the interest of TUI shareholders," TUI said in a statement.

"Irrespective of this, TUI AG will continue fully to exercise its role as majority shareholder in order to leverage the value potential and benefits within the TUI Group for the benefit of all shareholders and other stakeholders of TUI AG."

TUI Travel was understood to have raised key issues over whether a merged company would be headquartered in Germany or the UK and where it would be listed.

The UK arm tumbled 4.66% to 278.50p at 09:15 while its German parent fell 4.46%.

The news comes as Chief Executive of TUI, Michael Frenzel, prepares to stand down next month after 19 years.

RD

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