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FT. Sunday March 18 2007 19:24
Tui set for tour business merger.
By Roger Blitz in London and Ralph Atkins in Frankfurt.
The Tui board was on Sunday expected to agree to merge its tour operating business with First Choice a move that would see Europes four leading tour operators consolidate into two in just over a month.
The German-based operator, whose brands include Thomson Holidays of the UK and the pan-European Airtours, would take a 51 per cent stake in a business to be called Tui Travel, according to people close to the proposed deal, creating Europe,s largest tour operator.
First Choice would take the remaining 49 per cent and Peter Long, its chief exeuctive, would run the merged company, which would take over First Choice,s London listing. Michael Frenzel, chief executive of Tui, would be the new company,s chairman.
Tui shipping and other interests would be run separately from its Hanover base. Mr Frenzel has repeatedly resisted calls to split up the group.
Tui supervisory board was locked in talks which began on Sunday afternoon, but the company declined to comment.
The combined group, which unites the number one and number three tour operators in Europe, would have annual revenues of more than £10bn, and expect to have made synergies of £100m by the third year of operation.
The deal is a mirror image of the merger agreed by Thomas Cook and MyTravel, the second and fourth biggest operators whose merger was agreed last month.
The Thomas Cook-MyTravel merger, another German-British combination, killed off First Choices hopes of selling its tour package business, called Mainstream, to either party in order to focus on specialist and adventure holidays.
Both mergers could come to the attention of the European Commission which last looked at competition in the tour operating business in 2000. The industry has since been fundamentally changed by the impact of low-cost airlines and the internet which has revolutionised consumers behaviour in booking holidays.
Like other tour operators, Tui has been under pressure to boost the performance of its travel business activities. But Tuis shipping divisions have also faced restructuring costs and pricing pressures.
In December, Tui signalled it might report a loss for the year and announced that the group would skip a dividend payment. Earlier in the month, it had announced 4,000 job cuts, mostly at Thomson Holidays, reflecting the poor state of the UK travel market.
First Choice, with a market value of £1.4bn, earlier this month reported winter holiday revenues up 12 per cent and said it has exercised options to buy four Boeing 787 airliners to add to its fleet of 32 planes. It also paid £30m for three activity holiday companies.
JPMorgan last month said European tour operators could expect continued good growth and were adapting their strategies to changing circumstances.