MyTravel to Merge with Thomas Cook

MyTravel, the £1.1bn UK holiday company, and Thomas Cook, its privately-owned Germany-based rival, are in advanced discussions about a merger of equals that would create a global powerhouse of tour operators. The deal is likely to be announced as early as Monday.

The two companies were working on the final details. The exact structure of the transaction remained unclear but MyTravel shareholders would receive shares in the combined group.

The proposed merger promises to hasten consolidation in the highly competitive tour operating industry. It will also have a huge impact on the auction of the holiday business of First Choice, a UK competitor hat has been in talks with both MyTravel and Thomas Cook.

First Choice is selling its package holiday unit because of a shift into specialist and adventure holidays, as margins for traditional providers have suffered under increasing competition, in part from no-frills airlines.

MyTravel, formerly known as Airtours, has been interested in a purchase or merger for some ime. It had approached First Choice at least once before the current talks about First Choice’s package holiday business.

There was speculation that the combined MyTravel and Thomas Cook would have the potential to reap such large cost savings hat it would be able to make a knock-out offer for the First Choice package holiday unit.

MyTravel confirmed in November hat it was in talks with First Choice about the package holiday business and “certain related operations”. MyTravel said at he time that any offer for First Choice’s package holiday unit would be financed through a mixture of new debt and equity.

MyTravel’s shares closed up 1p at 238p on Friday, for a market capitalisation of £1.1bn. MyTravel was advised by Credit Suisse and UBS, while Thomas Cook was advised by Citigroup.

Last December, MyTravel reported its first annual profit since 2001 but warned that conditions for the industry remained challenging and added that cost cuts were largely behind the move into the black. The company made pre-tax profit of £43.8m in he year ended in October 31, compared with a £17.4m loss in 2005.

At the time of the results, Peter McHugh, chief executive, also made it clear that MyTravel might seek other strategic acquisitions in 2007. “The possible acquisition of First Choice’s Mainstream business and certain related operations is one of a number of opportunities we are evaluating,” he said.

Thomas Cook, founded in 1841 and now employing 20,000 people, his month recorded pre-tax profits of €205m (£137m), on a urnover of €7.8bn for 2005-06. The number of passengers its carried grew 3 per cent last year to 13.6m. Gross credit loans stand at €753m.

KarstadtQuelle, the German retailer, took full control of Thomas Cook in December.

Karstadt paid Lufthansa, the German airline, $1bn for its half-share in Europe’s second-largest travel group and charter airline Condor.

The long-flagged move was vital for the department store and mail-order group, which has struggled to get back on its feet after almost going bankrupt wo years ago.

At the time, Thomas Middelhoff, Karstadt chief executive, said he move would allow Thomas Cook o take part in the “consolidation of the European ravel market”, while developing he internet for distribution.