Thomas Cook buys MyTravel

KarstadtQuelle has pulled off a major surprise with the announcement that Thomas Cook and Britain’s MyTravel Group will merge into a new leading European travel group. The new UK-based company, which will be named Thomas Cook plc, will become market leader in the UK and Scandinavia, as well as number two in Germany. It will catch up dramatically on Europe’s largest travel group, TUI.

Just days after officially buying Lufthansa’s 50% holding in Thomas Cook AG to become 100% owner of the German-based group, KarstadtQuelle surprised the markets and the travel industry with the announcement of the My Travel agreement. It had been widely expected that Cook would beat off rival bidders to buy First Choice’s package holiday business.

Instead, the German retail group said that Thomas Cook and MyTravel would merge under a share exchange transaction that will not require any cash payments. KarstadtQuelle will own 52% of the company which it will also fully consolidate. MyTravel shareholders will hold 48% of shares in the new Thomas Cook plc, which will also be listed on the London Stock Exchange. The merger is subject to the approval of the anti-trust authorities and the shareholders of My Travel plc, and is expected to be completed by June 2007.

KarstadtQuelle CEO Thomas Middelhoff, currently head of the Thomas Cook supervisory board, will be chairman. Thomas Cook AG CEO Manny Fontenla-Novoa will be Joint CEO of the new company while Thomas Cook AG CFO Ludger Heuberg will be CFO of the new company. The MyTravel CEO, Peter McHugh, will be Joint CEO for a transitionary period until retiring on December 31, 2007.

The merged company, with sales of about €12 billion, will overtake Thomson / TUI as British market leader and catch up considerably on Europe’s largest travel group, TUI, which has sales of €14 billion. Thomas Cook AG, which is number two in Germany and the UK and has strong positions in Benelux, France and Central Europe, had turnover of €7.8 billion in 2005/06. MyTravel, with sales of €4.2 billion in 2006, is number three in Britain and is market leader in Scandinavia.

“The new tourism group will be free of debt, have high financial reserves and thus will be well positioned to proactively participate in further market consolidation in Europe, should we see the opportunity to increase value for our shareholders,” declared KarstadtQuelle AG CEO, Thomas Middelhoff. KarstadtQuelle would increase its turnover to €21 billion under the merger, with about 60% of revenues coming from tourism in future and 50% of revenues generated outside Germany.

Thomas Cook AG CEO, Manny Fontenla-Novoa, commented: “We believe in the future of the mainstream package holiday market, which will continue to be a core product of our ongoing business strategy. An immediate priority of the group will be to grow the independent travel, online and financial services segment of the business, where we see significant growth opportunities.”

No job reductions are planned in the Germany head office even though Thomas Cook plc will be based in London in future. Cook has 4,200 employees in Germany, including about 1,800 at the head office in Oberursel. In Britain, in contrast, synergies worth at least GBP 75 million a year are expected, with job reductions most probable in the travel agency networks and airline operations. Middelhoff indicated in an analysts’ conference that the merged company might downsize its UK fleet by six jets.

MyTravel has successfully completed its financial turnaround following heavy losses and returned to profit last year. Thomas Cook has also restructured over the last few years following large-scale losses and last year made a record profit. The loser of the deal is First Choice since both companies had been interested in acquiring its package holiday business. First Choice announced that it had cancelled the auction of the business and no negotiations were now taking place. The merger will also increase pressure on European market leader TUI which is under attack from financial investors and facing forthcoming restructuring of its tourism business to reduce costs.